ULSD Futures Have Dropped Below $3 For The First Time Since March This Week

ULSD Futures have dropped below $3 for the first time since March this week, and wholesale diesel prices are dropping to their lowest levels of the year. RBOB gasoline futures touched a new low for 2022 at $2.1753 overnight, and most US spot markets are trading well below the $2 mark.  

The heavy losses in refined products seemed to follow reports that China would be cutting retail prices for fuel due to a lack of demand, which is just the latest sign of economic fallout from the world’s largest oil buyer.  For distillates in particular, warm winter weather across the East Coast is sapping demand for heating oil, just a few short weeks after so much concern that there wouldn’t be enough supply. There was also a technical component to the selling after chart support from the lows seen in September and November broke down. The next layer of chart support for diesel comes from the March lows that are less than 3 cents below current values, so we should find out soon if the bulls are ready to defend their ground. 

All major US cash markets outside of New York are seeing discounts of 20 cents or more for prompt gasoline and distillate supplies, which proves that US refiners were up to the task of ramping up output, but now they seem to be having a hard time finding enough transportation options to get that fuel to where it’s needed. Prices to acquire space on several major pipeline systems remain elevated, although they have cooled somewhat in the past two weeks.

Italy and the US have worked out terms to keep a refinery in Sicily operating after the Russian sanctions have started to kick in for real, which is a positive for Atlantic basin supplies. Those sanctions are causing long queues of tankers in Turkish waters, as the need for new insurance paperwork causes traffic to grind to a halt. 

RIN values have wiped out 4 months of gains in just a few trading sessions following the EPA’s proposal for bio-fuel blending obligations for the next few years. While RINs north of $1.50 are still quite high compared to the entire history of the RFS program, it seems the market believes the plans to allow electricity generation from biofuels to qualify for RINs to add more supply than the increased blending mandates will offset. 

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