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Cautious Push Higher Continues Today

Friday, Nov 20 2020
Market Talk

The slow and cautious push higher continues today as diesel prices attempt to lead a push through the top end of the trading range that’s held the energy complex since June. ULSD futures are trading higher for a fifth straight day after reaching their highest settlement since July, but have still not yet been able to crack the $1.30 mark. Oil and gasoline prices have also been moving higher, but the moves over this entire week are less than what we would have expected in a single day last spring, and indicate the cautious nature of any optimism this year.

The correlation between daily moves in energy and equity prices has strengthened in the past few weeks as the markets have become fixated on the vaccine race versus the new shutdown orders amidst record COVID case counts. Ultimately, whether or not stocks can continue their recent march higher may determine if we see a breakout to the upside in energy futures, or if prices will fall back into their range yet again.

The move higher in ULSD over the past couple of weeks has helped diesel margins for refiners, but that’s largely been offset by weakness in gasoline, keeping the rough estimates of refinery profitability near breakeven levels. The forward curve looks better for the facilities that can weather this storm, although numerous reports suggest we’re likely to see more refinery closures in Europe and/or the U.S. before this is over. Asian refiners meanwhile seem to be doing well which creates a new shift in global logistics for crude and refined products that is expected to help tanker rates and ship operators.

A new bill known as the “Streamlining Advanced Biofuels Registrations Act” was proposed this week, in an attempt to force the EPA to consider applications for cellulosic biomass fuel producers. While this bill may have minimal if any impact on supplies near-term, it is a good reminder of why Georgia is looking like the most important state for fuel producers in 2021 as control of the Senate hangs in the balance. D4 RINs continue to hold near three-year highs around 90 cents/RIN, while D6 ethanol RINs have retreated in the past week, along with ethanol prices. 

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