The Bulls Have Scored An Emphatic Victory To Start The Week
The bulls have scored an emphatic victory to start the week, with diesel prices bouncing 25 cents off of the lows set yesterday morning, and putting the complex back into neutral territory after threatening a technical breakdown. RBOB gasoline futures have rallied 18 cents since Monday morning, while WTI has rallied more than $4/barrel.
Los Angeles gasoline prices have surged again in the past 2 sessions, trading back near $1.50 premium to October RBOB even as San Francisco premiums have dropped below $1/gallon. There’s not much time left for traders to schedule summer-grade gasoline in the local pipeline systems, which is likely to spark the inevitable price crash that everyone knows is coming, but no one can say when.
California’s LCFS values dropped to a 5 year low Monday, as a surge in new renewable diesel production has finally reached the market and created an excess supply of those credits.
Depending on the Carbon Intensity (CI) score of the product, this drop in LCFS values has knocked anywhere from 40-50 cents/gallon from the value of credit for biodiesel producers, to 75-95 cents/gallon for renewable diesel producers. Think about how your business may change to make a penny/gallon, and then think about how big of a deal this drop in credit values may be for those producers, particularly given the ongoing competition for feedstocks from biodiesel and SAF producers.
The good news for renewable producers is that RIN values have remained elevated and helped to offset some of the drop in LCFS credits, and in total RD producers can still earn nearly $5/gallon in total environmental subsidies, which makes competing with $3.50 ULSD a lot easier.
While Hurricane Fiona batters island nations throughout the Caribbean and North Atlantic, it is largely sparing energy supply infrastructure. There’s another storm system given 50% odds of developing this week however that looks like it could get into the Gulf of Mexico and will need to be watched closely. That storm would be named either Gaston or Hermine depending on how another system in the North Atlantic (with 80% odds of developing) behaves over the next few days.
Click here to download a PDF of today's TACenergy Market Talk.
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View AllThe 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.