Energy Markets Open May On Uneven Ground Amid Supply Strains And Policy Tensions

May trading is off to a mixed start for energy markets with gasoline prices up a couple of cents, maintaining the 4-year highs set earlier this week, while diesel and crude oil prices see a modest pullback.

The stalemate in the strait continues with no signs of new talks between the U.S. and Iran (although we’re always just one tweet away from that maybe changing, maybe not) while the violence is also on hold for now, giving markets a sense of relative calm before the inevitable next storm.

The surge in gasoline and RIN prices over the past several weeks has put incentive to blend more ethanol into the fuel stream at levels we haven’t seen in more than a decade. Whether or not this is enough incentive to get a Federal waiver of the E15 blending requirements remains to be seen, but the argument for doing so may never get stronger than it is today.

Chicago diesel basis values continued their record setting rally from 90 cent discounts to 90 cent premiums Thursday as 4 of the region’s refineries are all facing issues of some variety. BP Whiting, the largest facility in the region is apparently still attempting to recover from a power outage earlier this week, and effort that’s no doubt made more complicated by the ongoing lockout of its union employees.

While there’s HUGE opportunity to turn trucks around that had been long hauling from Chicago to now bring barrels in from neighboring markets, traders will need plenty of nerve to try a push a new pipeline batch that direction knowing we’ll see values drop by more than $1/gallon when things correct.

Don’t be fooled by the postings of San Francisco CARB diesel that suggest values are still close to 80 cents over June futures, as several trades occurred Thursday afternoon at a 55 cent premium and the market was left re-offered there, but given the timing and EPA not CARB spec, the pricing agencies continue to choose to leave their number unchanged since the last trade more than a week ago. Renewable Diesel all along the West Coast is seeing heavy discounting to its traditional diesel counterparts as domestic production is ramping back up quickly and shippers now have more options to move those barrels thanks to the Jones Act waivers.

The EIA Thursday highlighted the initial 17.5 million barrels of oil released from the SPR over the past month, roughly 10% of the total planned release as part of a global effort to ease supply constraints caused by the war.

Exxon Mobil had a huge quarter with operating earnings near $8.8 Billion, vs $7.6 billion a year ago although they officially only noted earnings of $4.2 billion due to the timing differences in their hedging program that they warned about last month. Given that Warren Buffett just stepped aside it seems a good time to say that the Exxon earnings report proves that income is a matter of opinion, cash is fact.

HF Sinclair also reported very strong earnings during a very dramatic quarter that saw the ouster of both its CEO and CFO. Following the pattern we expect from most refiners, HFS saw refining segment earnings jump to $514 million for the quarter from a loss of $30 million in Q1 last year. Their renewable segment also saw huge improvement with earnings of $182 million from a loss of $39 million a year ago, which is a simple example of why we’re seeing another surge of supply on the West Coast as producers who were just trying to survive this time last year are now seeing record profits due to high RIN values, more clarity on the CFPC (AKA 45Z, AKA PTC).

California’s Quarterly LCFS update showed a 2nd quarter of declines in the state’s credit bank after nearly 4 years of steady increases. The most notable detail buried in the report was that the bulk of the decrease in available credits was caused by an “Administrative Adjustment” that removed 400k credits from the market. LCFS prices seemed unfazed by the news hovering right around $68/MT as they had been prior to the data release.