Stand-Off In Congress Sparks Flight To Safety

Market TalkWednesday, Sep 29 2021
Pivotal Week For Price Action

Energy futures pulled back from multi-year highs Tuesday as the latest stand-off in congress sparked a bit of a flight to safety with equity and commodity markets moving lower, while the US dollar rallied to its highest level in almost a year. The selling in energy contracts seems to be tempered by the ongoing surge in natural gas prices around the world, that is showing few signs of abating anytime soon, which will make various petroleum products more attractive as supplemental fuels. 

RIN Values saw their first day of solid buying in weeks Tuesday, as political pressure on behalf of ethanol interests was heating up. There’s still no official word on whether or not the “leaked” RVO numbers last week were real or not, and the congressional staring match over budgets suggests we may not get an answer until that latest dumpster fire negotiation is put to rest. 

Tropical Storm Teresa is expected to be named later today, and the models should start giving us a better feel by the end of the week whether or not it will pose a threat to the US.  The other storm system that was given 80% odds of developing just to the west of Teresa, is now given only 30% odds.  Sam meanwhile continues to be a gentle giant major hurricane that is politely staying out to sea.

A tale of two carbon credits:  California Carbon Allowances (CCA) values have continued their seemingly relentless march higher, reaching new record highs on a weekly basis ever since April. A huge influx in net long holdings by money managers (AKA hedge funds) coincided with this steady push higher as it seems the banksters see an easy opportunity to profit from green ambitions, particularly when most of the world is still trying to figure out how their business can participate in the net-zero movement.  California’s LCFS credits meanwhile have dropped sharply to a multi-year low, partially offsetting the increased cost of CCAs to consumers.

What’s the difference?  LCFS credits can be generated by various renewable fuel & electricity producers that can prove their product beats the carbon intensity target values set by the California Air Resource board (CARB). CCA credits meanwhile are created out of thin air by CARB.  So, as production for renewables (Renewable diesel in particular, along with biomethane, SAF, renewable electricity etc) surges, so does the production of LCFS credits, while the CCA pool stays relatively stagnant. 

In addition to the big uptick in renewable diesel production, biodiesel that used to be sold in other parts of the US has been pushed west to pick up the additional LCFS tax credit in California that was adding roughly $1.50/gallon (depending on the Carbon intensity value of the fuel) but now is “only” adding around $1.20/gallon after the drop in credit values. Keep in mind that’s in addition to the $1/gallon blenders tax credit, and roughly $2+/gallon in RIN credits for each gallon sold, and suddenly it makes sense why a fuel that costs around $6/gallon to produce can compete with diesel that’s going for around $2.25. 

Why does this matter if you’re not living in California? Odds are your state (or country) are considering their own carbon-reduction program for fuels, and if they are, odds are even better they’re considering adopting something like one of the 2 California programs. Oregon’s CFP program follows the LCFS model almost exactly, while the new proposal for New England (TCI) seems to take after the CCA model.  

Click here to download a PDF of today's TACenergy Market Talk.

Market Update 9.29.21

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Pivotal Week For Price Action
Market TalkFriday, Apr 19 2024

Gasoline Futures Are Leading The Way Lower This Morning

It was a volatile night for markets around the world as Israel reportedly launched a direct strike against Iran. Many global markets, from equities to currencies to commodities saw big swings as traders initially braced for the worst, then reversed course rapidly once Iran indicated that it was not planning to retaliate. Refined products spiked following the initial reports, with ULSD futures up 11 cents and RBOB up 7 at their highest, only to reverse to losses this morning. Equities saw similar moves in reverse overnight as a flight to safety trade soon gave way to a sigh of relief recovery.

Gasoline futures are leading the way lower this morning, adding to the argument that we may have seen the spring peak in prices a week ago, unless some actual disruption pops up in the coming weeks. The longer term up-trend is still intact and sets a near-term target to the downside roughly 9 cents below current values. ULSD meanwhile is just a nickel away from setting new lows for the year, which would open up a technical trap door for prices to slide another 30 cents as we move towards summer.

A Reuters report this morning suggests that the EPA is ready to announce another temporary waiver of smog-prevention rules that will allow E15 sales this summer as political winds continue to prove stronger than any legitimate environmental agenda. RIN prices had stabilized around 45 cents/RIN for D4 and D6 credits this week and are already trading a penny lower following this report.

Delek’s Big Spring refinery reported maintenance on an FCC unit that would require 3 days of work. That facility, along with several others across TX, have had numerous issues ever since the deep freeze events in 2021 and 2024 did widespread damage. Meanwhile, overnight storms across the Midwest caused at least one terminal to be knocked offline in the St. Louis area, but so far no refinery upsets have been reported.

Meanwhile, in Russia: Refiners are apparently installing anti-drone nets to protect their facilities since apparently their sling shots stopped working.

Click here to download a PDF of today's TACenergy Market Talk.

Pivotal Week For Price Action
Market TalkThursday, Apr 18 2024

The Sell-Off Continues In Energy Markets, RBOB Gasoline Futures Are Now Down Nearly 13 Cents In The Past Two Days

The sell-off continues in energy markets. RBOB gasoline futures are now down nearly 13 cents in the past two days, and have fallen 16 cents from a week ago, leading to questions about whether or not we’ve seen the seasonal peak in gasoline prices. ULSD futures are also coming under heavy selling pressure, dropping 15 cents so far this week and are trading at their lowest level since January 3rd.

The drop on the weekly chart certainly takes away the upside momentum for gasoline that still favored a run at the $3 mark just a few days ago, but the longer term up-trend that helped propel a 90-cent increase since mid-December is still intact as long as prices stay above the $2.60 mark for the next week. If diesel prices break below $2.50 there’s a strong possibility that we see another 30 cent price drop in the next couple of weeks.

An unwind of long positions after Iran’s attack on Israel was swatted out of the sky without further escalation (so far anyway) and reports that Russia is resuming refinery runs, both seeming to be contributing factors to the sharp pullback in prices.

Along with the uncertainty about where the next attacks may or may not occur, and if they will have any meaningful impact on supply, come no shortage of rumors about potential SPR releases or how OPEC might respond to the crisis. The only thing that’s certain at this point, is that there’s much more spare capacity for both oil production and refining now than there was 2 years ago, which seems to be helping keep a lid on prices despite so much tension.

In addition, for those that remember the chaos in oil markets 50 years ago sparked by similar events in and around Israel, read this note from the NY Times on why things are different this time around.

The DOE’s weekly status report was largely ignored in the midst of the big sell-off Wednesday, with few noteworthy items in the report.

Diesel demand did see a strong recovery from last week’s throwaway figure that proves the vulnerability of the weekly estimates, particularly the week after a holiday, but that did nothing to slow the sell-off in ULSD futures.

Perhaps the biggest next of the week was that the agency made its seasonal changes to nameplate refining capacity as facilities emerged from their spring maintenance.

PADD 2 saw an increase of 36mb/day, and PADD 3 increased by 72mb/day, both of which set new records for regional capacity. PADD 5 meanwhile continued its slow-motion decline, losing another 30mb/day of capacity as California’s war of attrition against the industry continues. It’s worth noting that given the glacial pace of EIA reporting on the topic, we’re unlikely to see the impact of Rodeo’s conversion in the official numbers until next year.

Speaking of which, if you believe the PADD 5 diesel chart below that suggests the region is running out of the fuel, when in fact there’s an excess in most local markets, you haven’t been paying attention. Gasoline inventories on the West Coast however do appear consistent with reality as less refining output and a lack of resupply options both continue to create headaches for suppliers.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

Pivotal Week For Price Action