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Energy Prices Continue Their Recovery Rally After A Big Selloff Monday Morning Was Largely Erased In The Afternoon

Tuesday, Apr 26 2022
Market Talk

Energy prices continue their recovery rally after a big selloff Monday morning was largely erased in the afternoon. Diesel prices once again continue to steal the show as the market seems to be dealing with the realization that a demand slowdown is tomorrow’s problem, and today there’s still not enough supply to go around.  

The May diesel contract is smashing records for the steepest backwardation on record as it trades 51 cents above the June contract with less than 4 days until expiration. Those huge swings in time spreads continue to wreak havoc on US cash markets, with markets trading vs June seeing big premiums while some of those still trading vs May are starting to see hefty discount. The exception to that is the NYH which has cash prices still trading nearly 20 cents above May futures as the region slogs through the lowest inventory levels in history.  

The Chicago market meanwhile is facing the opposite situation, trading nearly 60 cents below NYH prices as inventories swell thanks to big refining margins and weak spring demand.  Theoretically at least long haul trucks could move from the eastern fringe of Chicago-based markets to take advantage of that arbitrage window, but as we’ve seen over the past 18 months, the shortage of drivers makes that move less likely. 

While there was a modest pullback in biodiesel prices and their associated RINs after Indonesia said it was “only” banning processed palm oil exports, not all of them, a Bloomberg article highlights why the shortage of oils is going to lead to another spike in grocery prices. The EPA meanwhile has been compelled by the courts to finalize its 2020-2022 RFS obligations, just 6-30 months behind the schedule set out in the law.

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