Refined Products Are Trading Within ½ Cent Of Where They Were This Time Yesterday

Let’s try that again: refined products are trading within ½ cent of where they were this time yesterday, but – as they often do - have taken a roundabout way to go nowhere. At least some of the choppy action can be blamed on a rollercoaster in US equity markets on Monday, and while some of the back and forth looks like a market that’s going to consolidate and move sideways after a solid 2 week rally.
Besides technical indicators moving into a more neutral stance, fundamentals are looking less bullish now that they did just a few days ago. Oil production in both Libya and Kazakhstan appears to be coming back online this week, which takes away one of the arguments for the bulls to keep oil prices in the $80 range. So far the record setting pace of Omicron cases in the US is being taken in stride, even as it clearly starts to impact activity, which seems primarily due to the expectations that this variant will run its course relatively quickly, and not impact demand for very long.
The FED is once again taking center stage in the financial markets this week as yet another governor steps down for the perception of insider trading on the FOMC data, and the chair prepares to testify in front of congress as the markets are starting to behave like there will be 4 interest rate hikes this year.
Unlike the see saw action in products, RINs are continuing to march slowly but steadily higher this week, with D6 ethanol values approaching the $1.30 level for the first time in nearly 3 months. Ethanol spot prices meanwhile are trading roughly 80 cents lower than they left off in 2021. Why the disconnect between the two? As the forward curve chart shows, forward ethanol prices are actually higher today than they were trading a month ago, but the extreme backwardation we saw in November and December finally evaporated after the holidays.
A Reuters article this morning highlights the big changes on the table for the RFS this year as the original law included a clause requiring a reset in 2022. 17 years after the RFS first came into law, the program mandates roughly 21 billion gallons of biofuels to be blended in the US annually, vs a program target of 36 billion gallons, mainly because the cellulosic ethanol so many were relying on to make the RFS a reality nearly 20 years ago still doesn’t exist commercially. A shift away from traditional ethanol – which several studies suggest can be worse environmentally than gasoline – and potentially adding electricity to the RFS are two major changes some think could be announced this year.
Click here to download a PDF of today's TACenergy Market Talk.
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The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.

Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.
