Energy Markets Oscillate Amid Pending Regulatory Updates, Inventory Reports

Whiplash is the theme of the week so far as a big Monday sell-off has given way to a strong Tuesday rally. Tomorrow is set up for more fireworks with the FOMC announcement coming on top of a pair of regulatory updates for renewable fuel programs and the weekly inventory reports.

Take your pick: A report from the bank affectionately known as the Vampire Squid seemed to contribute to Monday’s risk off sentiment, citing an increase in Russian supply for lowering their oil price outlook for the year. This morning, a Reuters report that Russian exports dropped sharply in May seems to be helping the complex take back most of yesterday’s losses.  

The dramatic fall in motor fuel prices over the past year is helping to keep a lid on inflation figures. It was this same week a year ago that gasoline futures reached a record high of $4.32, while ULSD futures touched $4.64. The official CPI for May came in at 4% annual inflation, but would have been much higher without official declines of 19-37 % for fuel. The official inflation figures excluding food and energy were 5.3 percent for May, but food prices were up 6.7% on the year, in another example of how the rapidly declining fuel prices are helping offset increases elsewhere. The CPI reading appeared to be right in line with many estimates for the month, and the market reaction in both energy and equities was muted. 

Rack prices across West Texas and the Southwestern US have returned to more “normal” levels after 2+ months of huge premiums vs spot markets following overlapping maintenance at multiple refineries in the region. Over the weekend Along Big Spring, P66 Borger and Marathon El Paso refineries all reported upsets to the TCEQ, which could lead to product tightening up in the region once again, although it’s unlikely we see another spike like we did this spring unless there is more extended downtime.

While the tropics remain quiet in the early weeks of the Hurricane season, severe weather is picking up across the southern US, and inland refineries like Valero Ardmore OK, Delek Tyler TX, Calumet Shreveport LA, Delek El Dorado AR, and Valero Memphis TN are all in the path of severe thunderstorms and tornado warnings this week.

California Carbon Allowances rallied to a 10-month high Monday ahead of a workshop tomorrow to discuss potential changes to the state’s Cap & Trade program. RIN values meanwhile have recovered most of the losses they saw last week as traders anxiously away the EPA’s court-ordered deadline to announce RVO levels for 2023-2025 which also happens to be tomorrow.

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