Diesel Futures Leading Energy Complex Higher Testing End Of Summer Trading Ranges

Diesel futures are leading the energy complex higher to start Wednesday’s trading, up 3 cents/gallon in the early going while gasoline futures are up 1.5 cents and WTI prices are up 75 cents/barrel. There is little in the way of real news to drive the action so far, suggesting that the move is more technical in nature with prices ready to test the higher end of their summer trading ranges after support held at the bottom end of that range over the previous week.

Headlines are pinning the early strength on a drop in crude oil inventories of 2.4 million barrels reported by the API yesterday afternoon, but that sure doesn’t explain why ULSD futures are leading the way higher even though that same report showed a 500,000 barrel increase in distillate supplies. The DOE’s weekly report is due out at 9:30 central.

While Hurricane Erin continues to draw attention as it moves too close for comfort up the eastern seaboard, weather further inland is likely to have more direct impacts on supply and demand this week. A front moving eastward across the northern half of the country will meet with tropical moisture from Erin later today and is expected to bring heavy rains and flash flooding to parts of the East Coast.

That line of storms moving inland already knocked the largest refinery in the Midwest offline Tuesday as BP’s 440mb/day Whiting IN (Chicago area) plant was taken down due to 9” of rain flooding the facility. Early reports suggest that operating units weren’t seriously damaged by the water, but they’ll need up to a week to drain and clean the facility to make sure everything is ready for a safe startup. Chicago basis values jumped 3-5 cents/gallon following that news Tuesday, which is actually quite tame for that notoriously volatile market. In addition to the units taken offline within the facility, company posts note that they’re dealing with sheens in the water on both a neighboring street and in lake Michigan as the flood waters spread petroleum products outside of the facility.

The NHC continues to track 2 more systems behind Erin, the first is given 60% odds of being named, but appears to be shifting north which should keep it out to sea. The other system known as 99L is given 40% odds of being named this week and its path is still a wildcard, so we’ll need to keep an eye on it for another few days.

The American Trucking Associations monthly truck activity report showed a small increase in activity in July after 2 months of declines. Despite the tick higher, the ATA’s truck tonnage index is still lower than it was two years ago in a sign that the “freight recession” isn’t yet over which is one key reason we aren’t seeing diesel prices at much higher levels with inventories near 20 year lows.

The EPA is now 5 days behind its recent schedule for publishing monthly RIN generation data. The market for RINs has been softening for the past week, reaching a fresh 2 month low at $1.03/RIN for D6 (ethanol) which would put D4 (BIO) values around $1.09. Later today California (along with Quebec) is holding their latest quarterly auction for Cap & Trade credits (CCA) while CARB works on extending that program, and potentially eliminating the carbon offset component (CCOs) that were touted previously as a cost control measure for the program.