Energy Bulls Recharged After Tuesday's Rally Rebuffed

A strong morning rally in energy futures ran out of steam after just a few hours Tuesday, leading to a big price reversal in the first trading day of 2024. The bulls are giving it another go this morning, pushing diesel prices up more than 4 cents, while WTI is up 70 cents/barrel but RBOB futures have already lost their upward momentum and are trading in the red once again.  

The big rally in equity markets seems like it’s run out of steam temporarily, which doesn’t seem to be helping energy markets in their search for direction, and more choppy back-and-forth action can be expected until we break out of the recent trading range.   

The rising tensions in the Red Sea will remain a convenient excuse for any price rallies, even though physical markets seem to be adjusting fairly well so far to this latest shipping disruption. Reports suggest 2 more missiles were fired at transiting ships Tuesday, but no damage was reported. Maersk signaled it was backing off on its plans to resume transit through the area due to the latest escalations from Iran and the Houthi rebels.

The DOE’s weekly status report is delayed due to the New Year’s holiday this week and will be delayed again in 2 weeks for MLK day. The full 2024 holiday recap for the NYMEX, Banks and fuel pricing agencies is included below.  

Ethanol prices continue to slide near 3 year lows as corn prices have stagnated below $5, and it looks like a long shot that the White House will offer producers another bail out in an election year. Adding insult to injury for ethanol makers: China is testing out a new coal-to-ethanol conversion facility that sounds like it only pollutes slightly more than the current process of corn-to-ethanol production.

RIN prices continue to trade near a 3 year low as well, as the rapid influx of renewable diesel keeps a lid on both D4 and D6 values. 

2024 is the last year of the $1/gallon blenders tax credit for biodiesel and RD that has been the life-blood of many production facilities, along with the $2-$4/gallon in RIN and LCFS incentives needed to make those products competitive. Next year the new Clean Fuel Production Credit takes effect, which will require producers to prove the carbon emissions savings of their fuel in order to qualify for the credits. The new CFPC rule also includes prevailing wage and apprenticeship requirements (as part of the IRA law) and importers will not qualify for the credit, unlike the BTC. 

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