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Have Fuel Prices Found A Floor?

Tuesday, Aug 9 2022
Market Talk

Have fuel prices found a floor?

After dropping 60 cents in a week and a half, diesel prices have bounced 17 cents in the past 24 hours, and gasoline prices are up nearly 20 cents since bottoming out last Thursday.  While crude oil prices have also bounced, WTI is up $5/barrel from Thursday’s lows, they’re not keeping pace with the recovery in refined products, suggesting this move may be driven by spread buyers as we head into the fall maintenance & storm seasons with a refinery network that’s more vulnerable than it’s been in decades. 

There isn’t much in the way of a headline to pin the sudden reversal in diesel prices on, and in fact European natural gas prices are pulling back as inventories have recovered in recent days, which would tend to act as a drag on diesel prices. This suggests the move may be more technical in nature, as trading programs and some humans see the latest wave of selling as a good buying opportunity after the head and shoulders and descending triangle patterns that foreshadowed lower prices have now been completed. The first big test for the bulls to decide if they’re serious about this rally is to get diesel prices back north of $3.50, and gasoline prices back above $3.

The latest round of negotiations with Iran over its nuclear ambitions ended without any sign of progress, reducing the odds that Iranian oil exports will legally re-enter the world market. 

The national hurricane center still gives a 40% chance the storm moving over the Atlantic will get a name this week, and the long range forecasts suggest there will be more storms coming soon as the hurricane season reaches its peak a month from now.

HF Sinclair proved that the previous year was a great time to be buying refineries, joining its US peers reporting huge profits for the 2nd quarter. While the company’s newly acquired facilities netted nearly $30/barrel after operating costs, the renewable diesel operations showed heavy losses for the quarter, suggesting that turning soybeans into motorfuel may not be the field of dreams many have been hoping for, even with nearly $5/gallon in various government tax credits and subsidies and diesel prices at elevated levels. 

Speaking of which, the spending bill passed in the Senate this weekend includes the extension of several existing biofuel credits, and the addition of several new credits to encourage more production. One detail that’s already expected to have unforeseen consequences is that Sustainable Aviation Fuels (SAF) will get $.25-$.75/gallon more credits than Renewable Diesel, which will likely mean a shift by some producers away from on-road fuels given the limited feedstocks available to make fuel out of food.

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