RBOB Gasoline Futures Are Once Again Leading The Price Action, Dropping A Nickel In The Early Going After Rallying 7 Cents Monday

Energy futures are sliding back into the red Tuesday after a strong rally Monday as traders appear to have remembered that it’s still January. RBOB gasoline futures are once again leading the price action, dropping a nickel in the early going after rallying 7 cents Monday, while ULSD futures are currently close to erasing Monday’s 3 cent gains. 

The winter demand doldrums continue to show up in cash markets around the country, with diesel differentials in both the Group 3 and Chicago markets dipping below 45 cent discounts to futures, despite a handful of refinery hiccups reported due to winter weather and power outages over the past week. Those heavy discounts are offering a big incentive to anyone creative enough to find a way to move barrels from the middle of the country to the East or Gulf Coasts.

While the weak values in the mid-continent are a big story so far this winter, weakness in San Francisco stole the show Monday as prompt diesel basis values plunged more than 22 cents on the day and are currently valued around 35 cents below February HO. Some of that weakness may be an anomaly due to the end of January pipeline scheduling and we may well see a big bounce as traders shift to February, but there are plenty of reports in the region of terminal supplies swelling and Kinder Morgan cutting pipeline batches as a result, so the weakness certainly has some potential to stick around a while. 

Meanwhile, Los Angeles traders seemed unimpressed by reports that Marathon’s Wilmington facility had been taken offline with prompt differentials for both gasoline and diesel finishing slightly lower on the day.

RIN prices have dipped to a 3 year low this week at or below $.75/RIN for both D4 and D6 values as the rapid increase in Renewable Diesel output continues to add more supply of physical diesel and RINs.  In addition, California’s LCFS values have dropped to a new multi-year low below $60/credit this week, putting more pressure on renewable producers who depend on the combined subsidies provided by RINs, the $1/gallon federal blender’s tax credit (aka BTC, which ends this year), LCFS credits and the amount charged for CCA costs in order to stay profitable. As the chart below shows, the decline in RIN and LCFS prices over the past year makes the outlook for those producers much less appealing, especially knowing that the BTC will be going away next year.

The lower RIN values is typically good news for US refiners who bear the burden of complying with the Renewable Fuel Standard, but given the impact of new competing refinery output, a new outlet for Canadian crude and sluggish demand, those lower RIN values still may not be enough to keep some facilities from contemplating run cuts this year.   

Speaking of which, the CEO of Pemex said over the weekend that the long-awaited Dos Bocas refinery on the southern Gulf of Mexico coast will reach its fully capacity in March.  That would mean a new 340,000 barrels/day of throughput for the country that bought more than 700,000 barrels/day from the US last year and would inevitably back up barrels into the US if it ever actually happens. 

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