Energy Markets Mixed As LCFS Prices Surge, Rig Count Falls Again

It’s a mixed bag for energy markets as June comes to an end, as US equity markets point to fresh record highs thanks to the latest blink in the tariff contest and progress on a big (yuge?) spending bill. The correlations between moves in equity and currency markets to energy contracts remains weak, so the gains in stocks and softer dollar aren’t coming with a bid for refined products or oil prices as they would have in years past.

Today is expiration day for July ULSD and RBOB futures, which is creating the typical noise due to the lack of liquidity so be sure to watch the August contracts (RBQ/HOQ) for direction today if you’re not already doing so. See the table below that shows how 45 minutes without a trade can skew values.

OPEC & Friends are meeting Sunday, and will convene in person this time, raising debate on the cartel’s plans to continue raising output at a faster pace as they’ve announced in the prior 3 meetings.

California’s LCFS credit values surged more than 10% Friday afternoon after CARB announced it had received approval to implement its more stringent levels effective July 1, following the February surprise ruling by the state’s OAL that sent values tumbling from the $75 range to $40 a few weeks ago. Even a recent proposal by democrat senators that would cap LCFS prices doesn’t seem to be a deterrent at this point since the price ceiling they’ve proposed is still roughly 50% above current values. Since the new rules increase the “actual” CI score for traditional fuels in addition to lowering the CI limit, the net result is that each gallon of gasoline and diesel sold now creates nearly 80% more of an obligation under this program, and as of Friday’s credit values will increase the cost of compliance by roughly 7 cents per gallon. See table below.

A trio of states in the NE US are implementing new biofuel minimums for heating oil effective tomorrow, with New York and Connecticut both requiring 10% minimum biodiesel blends, while Rhode Island will require a 20% blend. Of course, these minimums based on programs established years ago are hitting at a time when biodiesel production has plummeted, which may not be a concern in the summer time, but will certainly complicate supplies if we get another cold winter. ULSD is not impacted by these heating oil blend requirements.

Money managers were acting bullish on refined products and bearish on crude oil contracts in the latest CFTC commitments of traders report, which was compiled with data from Tuesday, on the tail end of the biggest 2 day selloff we’ve seen in more than 2 years. The spike in volatility in June also had some traders heading for the exits as open interest in refined products dropped to multi-month lows, along with speculative bets on lower prices.

Baker Hughes reported a decline in the US active oil rig count for a 9th straight week, pushing the total to its lowest level since October 2021. The oil rig count dropped by 6 on the week, while the natural gas rig count dropped by 2.

Motiva reported an upset at its Port Arthur chemicals facility over the weekend, but it appears that its adjacent refinery operations were not impacted by that event.