Another Strong Start For Energy Futures With ULSD Leading The Way

Energy futures are off to the races to start the week. ULSD futures are leading the way, rallying more than a nickel in early trading while gasoline futures are up more than 3 cents, despite the fact that OPEC & Friends agreed to further relax their output restrictions over the weekend.

If you believe the theory that last week’s selling was caused by those predicting a larger increase in production by the cartel, then it’s easy to write off today’s move as a “Sell the rumor, buy the news” phenomenon, particularly since the rate of production increases is slowing from previous announcements. There’s also the inconvenient little detail that the only countries with true spare capacity to swing supply are Saudi Arabia and the UAE, while all the others are basically missing their quota either on the high side when the “voluntary” cuts were in place, or on the low side now that they’ve been relaxed.

Of course, the OPEC news really doesn’t explain why diesel prices are outpacing the gains in crude two to one so far this morning. Potential sanctions on Russian and tougher tariffs on Indian supplies of Russian-oil-linked products are getting some of the credit for the outsized gains in refined products, and the U.S. and European dependence on those supplies gets more attention, although it’s still unclear if petroleum products will be exempt from the recent tariff talk. Meanwhile, Ukraine itself is said to be importing Indian diesel to replace supplies lost after one of its key refineries was knocked offline by Russian strikes, while Ukraine’s military continued to pummel Russian refineries and crude pumping stations over the weekend.

In addition to the perceived supply challenges for traditional diesel, the EIA last week highlighted the dramatic drop in Renewable fuel imports in 2025 caused by changing incentives and terrible margins for producers of Biofuels. While this really isn’t news to anyone that’s been paying attention this year (particularly to the monthly RIN generation data charts we’ve published) the recap of events at play and dramatic chart do offer a good reminder of how bad things have gotten for that section of the industry this year, and the agency expects this trend to last through 2026 as well.

In an effort to counteract the negative impacts of the recent changes in U.S. policy, Canada announced it will be introducing new biofuel incentives of $370 million to try and help its domestic RD and Bio producers avoid having to shut their doors. The new program will be available from January 2026 to December 2027 for up to 300 million liters (just over 79 million gallons) per facility.

The storm system that the NHC gave 90% odds of developing last week dissipated over the weekend without earning a name. The agency now predicts no tropical development for the next week. While named storms won’t be an issue this week, there are flash flood warnings for large parts of South Texas today as remnants from the Pacific storm Lorena runs into moist air from the Gulf. The warnings look to be south and west of the refining clusters along the coast however, so this should not be a supply issue, and forecasts suggest it also should not be as severe as the deadly flooding we saw in July.

A race to Arizona? Just weeks after Kinder Morgan announced an open season to potentially increase capacity on its East line that hauls products from El Paso to Phoenix, RBN is reporting that ONEOK (the recent buyers of Magellan) has announced plans for a new line running from El Paso to Phoenix. That line, if built would have an initial capacity of 200mb/day and start (in theory) in 2029. The rationale is simple (Arizona’s population is growing rapidly and Southern California’s refining capacity is dropping) but the creation of a new common carrier multi-state pipeline system in the U.S. is anything but with numerous competing interests at play.

P66 reported another upset at their Borger TX refinery that affected 2 FCC units at the facility which is a frequent flier on the TCEQ emissions event filings. That upset was said to last 3 days and will further complicate supply challenges in the region that have seen rack spreads tighten up to their highest levels of the year. Meanwhile, the HFS refinery in Artesia NM that has been facing unplanned maintenance for the past couple of weeks is expected to be back online this week, which should help offset the Borger issues if it does in fact come back online as planned.

Money managers look like they probably weren’t enjoying last week’s tick higher in volatility as they were making healthy increases in their bets on higher energy prices as of Tuesday, suggesting several were squeezed out of recent short positions during the big rally to start the month only to see prices crumble in the back half of the week. Now we’ll have to wait and see in this Friday’s report if they bailed out the other direction during last week’s selling only to miss the bounce today.

Baker Hughes reported an increase of 2 oil rigs drilling in the U.S. last week, while the natural gas rig count dropped by 1.