Energy Prices Bouncing To Start Tuesday After Monday Saw 11-Month Lows For Gasoline And Oil Prices

Energy prices are bouncing to start Tuesday’s session after gasoline and oil prices dropped to 11-month lows on Monday, while distillates reached their lowest levels since the start of the war.

Less than 6 months ago, the cheapest wholesale regular unleaded gasoline in the country was going for $4.18/gallon, and today the most expensive is going for $2.36 and several spot markets have prices below $2. The bounce in futures puts the chance of a technical collapse on hold for now, but if support around the mid $2.20s breaks, there’s a good chance we’ll see gasoline futures fall below $2 this winter as well.

The drops have been even more dramatic for distillates, with NYH spots dropping $1.75/gallon in just 3 weeks and most other regional cash prices touching their lowest levels since late February. Distillate basis values are also trading at historically weak levels across most of the country, with 5 out of the 6 major cash markets seeing a discount of 24 cents or more to December futures, while the NYH is the only market left trading at a premium. That weakness in basis differentials suggests there is excess physical supply at several of the major origin points around the country, while elevated rack prices in numerous markets suggest there are still shortages at the destinations, as transportation bottlenecks continue to confound the supply network.

RINs have continued their steady march higher, touching fresh 18-month highs, and coming within striking distance of new all-time records, a day before the EPA is obligated by court order to release its mandates for the Renewable Fuel Standard for 2023 and beyond. 

Meanwhile, the EPA has approved a fuel pathway for Chevron to co-produce biofuels from soy oils at its refinery in LA after a 2-year review. While the EPA’s approval limits the firm to generating D6 RINs for now, this type of co-processing could eventually be a game changer in that refiners may no longer have to fully convert their petroleum operations in order to produce biofuels, and may add to the lingering regret from those companies that already have.

The risk of a US rail strike seems to have decreased after the President and congressional leaders agreed to support legislation to block a walk-out, forcing the holdout unions to accept the deal negotiated in September.   

While the Atlantic hurricane season is down to its last couple of days, with no tropical threats in site, refinery row along the US Gulf Coast is included in a severe weather watch that is expected to see numerous tornadoes form over the next 24 hours. While the most severe areas are forecast to be well north of most Gulf Coast refineries, power outages and other damage could still cause some disruptions to facilities in the region.

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