The Race To Take Advantage Of Environmental Incentives Continues

Gasoline prices reached new lows for the year Thursday as another heavy wave of selling hit the energy complex. RBOB futures touched a low of $2.09/gallon yesterday, and Gulf Coast CBOB prices dropped below $1.90/gallon meaning some retail prices around Texas could see prices around $2.50 just in time for Thanksgiving. Crude oil prices also reach a 4-month low during the sell-off, before a modest recovery rally started overnight. 

After weeks of being the weak link in the energy chain, ULSD prices are actually holding up relatively well during this latest slide and are currently trading 8-cents above the 3-month low they set last week and hovering around the 200-day moving average. 

The recent price drop has caused speculation that OPEC & Friends may extend or increase their output cuts at their November 26th meeting given that Brent crude is currently sitting roughly $5/barrel below the low end of their price target.  

Both WTI and Brent have slipped into a slight contango at the front of the forward curve, a dramatic shift from the steep backwardation we saw a month ago, and a sign that physical supplies are healthy and/or recovering. The change in refined products over the past month has been less dramatic than crude, with a modest backwardation remaining for RBOB and ULSD futures. (See charts below)

The race to take advantage of environmental incentives continues: The EPA’s recent ruling on allowing bio-intermediates to qualify for RIN generation last year has opened up numerous new possibilities for RD and SAF production at refiners that previously only ran crude oil.  Prior to that ruling a bio-fuel had to be completely made at a single location, but now the soybeans or other feedstocks can be turned to oil in one location and then that oil can be refined elsewhere. North Dakota announced its first soybean crushing plant this week that will send its processed oil to Marathon’s Dickenson for processing into RD.  

Meanwhile, Braya Renewables – a Dallas based firm who bought the shuttered Come By Chance refinery in Newfoundland – announced a new deal with Macquarie Energy Canada to buy feedstocks and sell its output. That Macquarie deal is similar to one arranged earlier in the year with Vertex, who bought one of the handful of refineries Shell probably wants back now and shows how the banks are getting back into the energy trading arena in a big way after many were forced out following their bailouts during the financial crisis.

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