Energy Futures Are Ticking Lower For A 2nd Day As The Search For Direction Continues Heading Into Year End

Market TalkThu, Dec 28, 2023
Energy Futures Are Ticking Lower For A 2nd Day As The Search For Direction Continues Heading Into Year End

Energy futures are ticking lower for a 2nd day as the search for direction continues heading into year end. ULSD futures are now trading 15 cents below the highs reached last week but are still 14 cents above the lows set 2 weeks ago. That back and forth is indicative of the neutral technical outlook we’re in near term, while longer term charts still given slight favor to lower prices ahead. 

The DJIA reached a new record high Wednesday at 37,656, while the S&P 500 is just half of a percent from a new record of its own. Energy and equity prices had a strong positive correlation early in 2023 but have moved independently of each other the past few months, so the pull higher from stocks just isn’t there. Likewise, the US dollar influence on energy futures, which is often cited as a daily driver of price action, has been essentially non-existent of late, so the big drop in the US dollar coinciding with a huge rally in US treasuries, isn’t pushing up oil prices as it has in years past.

An attack on a container ship in the Red Sea Tuesday was repelled by the US Navy, which said it shot down 12 drones and 5 missiles heading for the ship and suggests that the coalition forces are up to the task of protecting ships in the region.

RIN prices have dropped near a 3-year low this week and are on the verge of a technical breakdown that could send prices sharply lower if they break and hold below $.75/RIN.  RIN prices have dropped nearly $1/RIN this year as the rapid influx of renewable diesel (which creates 1.7 RINs/gallon vs 1.5 for biodiesel and 1.0 for ethanol) brought a huge increase to the RIN supply pool, while the EPA’s increase in bio-mass mandates wasn’t enough to offset that new supply.   With the upcoming changes to the Blenders Tax Credit that will soon require bio-fuel producers to prove the environmental benefit of their product to receive a credit, vs today’s $1/gallon for everyone, and stagnate prices for LCFS credits, subsidy revenue for bio-producers looks like it will be a headwind in 2024. 

San Francisco basis values continued their recent rally, following a surprise inspection of PBF’s refinery in Martinez Wednesday, following multiple upsets the week prior. Prompt values for CARBOB gasoline traded up to a 60-cent premium to futures in San Francisco yesterday, compared to discounts of 15-30 cents/gallon in the Gulf Coast and Mid-West. Bay Area prices are expected to remain volatile this year as the 2nd of 5 local refineries is in the process of converting to renewable production, leaving the region more vulnerable to supply shocks.

The API reported a build in crude oil stocks of 1.8 million barrels last week, while diesel saw a small increase of 270,000 barrels, and gasoline stocks saw a small decline of 480,000 barrels. The DOE’s weekly report is due out at 10am central today and will be on the same delayed schedule next week for the New Year’s holiday and in 3 weeks for MLK day. 

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Energy Futures Are Ticking Lower For A 2nd Day As The Search For Direction Continues Heading Into Year End