Energy Futures Buck Sinking Equities, OVX Drops To Yearly Low

It’s a quiet start for energy markets Wednesday with gasoline and diesel prices hovering around break even for the day following a strong recovery rally in diesel prices Tuesday that earned back nearly half of last week’s heavy losses. 

Refined products continue to shrug off moves in equity markets, with a 2% drop in US stock indices doing little to slow the bounce in refined product prices Tuesday. It’s also worth noting that the oil volatility index (OVX) reached its lowest level since January of 2022 last week, even as stocks are seeing a tick higher in their volatility readings (VIX).

A new report suggests that European refinery runs reached their highest levels since the start of COVID in January, which no doubt played a role in the substantial pullback in crack spreads we’ve seen in the past several weeks. The big question now is whether or not those plants can maintain that level of run rate, or if it was a short-term acceleration in preparation for the Russian diesel embargo. Speaking of which, a Reuters report today highlights how traders continue to get creative with their boats to bypass sanctions. 

Freeport reported it had received regulatory approval to restart commercial activities at its LNG facility that has been offline for nearly 8 months due to a fire. That facility is the 2nd largest in the US, and accounted for more than 10% of export volumes, so should help alleviate some of the domestic glut of supplies that have pushed Natural gas futures below $2 for the first time since September of 2020.

California’s Air Resources Board (CARB) is holding a public workshop today to discuss potential regulation amendments. The slide deck published ahead of that meeting suggests the agency is pushing for a “step change” in carbon intensity targets to boost LCFS credit prices and “increase ambition for 2030”. LCFS values rallied to a 6 week high following that report, although they remain at just a fraction of the value we saw 2 years ago…which is why the agency seems to see the need to change target reduction levels to prop up those prices.  The slide deck also suggests the agency is looking to add intrastate Jet Fuel usage to the LCFS program, and phase out some forms of renewables, like RNG (aka biomethane).

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