Energy Markets Wobble As Diesel Dips, Oil Climbs, And Credit Costs Soar

It’s a mixed start for energy markets Thursday after 2 whiplash sessions have left traders on edge. ULSD futures are trying to push lower for a 2nd day after hitting a 4 month high in a short-lived spike Tuesday, while oil prices are trying to move higher and RBOB futures are stuck in the middle trading either side of unchanged in early trading.

Energy markets continue to move separately from equities, which are in the midst of a sigh of relief rally following a strong outlook from Nvidia, and a September payroll report that had decent growth roughly 2X of several published estimates.

The BLS estimated 119,000 jobs were added in September, while lowering its guesses for both August and July by a combined 33,000 jobs. The headline unemployment rate ticked up by 1 tenth to 4.4%, while the less manipulated “U-6” unemployment rate ticked down by a tenth to 8.0%. The FED’s minutes released earlier in the week suggest that it’s unlikely they’ll make another rate cut in their December meeting, and this jobs report is unlikely to change that stance. In addition, the BLS announced it was cancelling its October jobs report and will combine that month’s data when it releases its November report in 2 weeks.

Washington state’s Cap & Trade program credit values are surging this week reaching all-time highs that equate to a cost of nearly 70 cents/gallon for ULSD. That increase in Washington credit prices will encourage in-state refiners like P66, BP and HF Sinclair to shift more barrels away from the state to avoid those fees, with California a natural target given their loss of refineries in recent history. The spread between credit values in Washington and California where the current value of the LCFS and CCA program taxes have dropped to “only” 47 cents/gallon will help offset some of the excess cost of shipping via Jones Act qualified vessels.

Any excess supplies hitting California in the balance of 2025 is in for a rough go as differentials for diesel have plummeted to multi-month lows in the past week as soft demand, the influence of steep backwardation in futures, and renewable producers racing to beat the clock to ensure full RIN value before the proposed rule change that cuts 50% of the RIN value off imports all collide.

A Reuters rumor Wednesday suggests that the White House may be considering delaying the 50% import rule – which would make sense given that China is back buying US Soybeans again removing the need for yet another Ag-related subsidy – but RIN markets seemed to shrug off that news with essentially no change in D4 or D6 values.

Do they have to buy credits for the gallons they spilled? BP’s Olympic pipeline that moves products south through Washington to Portland OR, is still struggling to restart full operations a week after an apparent leak on the line. Washington’s governor issued an emergency proclamation due to the shutdown of the line focused on getting enough Jet fuel to the SEATAC airport ahead of the busiest travel week of the year.

Keep chipping away: Ukrainian drones struck the 350mb/day Rosneft refinery near Moscow for the 2nd time this week. Energy News Today is reporting that the attack hit the facilities main crude distillation unit, while a smaller crude unit was knocked offline by the attacks earlier this week, which probably means the plant will be completely offline.

Notes from the DOE’s weekly status report:

Crude drew with heavily increased exports and total U.S. refinery runs increasing, particularly in PADD 2. The Midwest has gone from below its 5-year range to a seasonal high over the past 3 weeks while the Gulf Coast region had a small increase to stay at the top of its chart. All other PADDs dropped but remain strong outside of the West Coast where another decline leaves run rates well below average and shaves ~3 percentage points off their utilization rate.

Changes in diesel stocks were mixed for a small overall build with declines in exports and demand. PADD 3 shows a significant bump up to a new seasonal 5-year high along with an increase in PADD 4 to outweigh the drops from already low levels in PADDs 1 & 2. Traditional diesel dipped below average in PADD 5 as well but is still tracking ahead of its 5-year range when considering renewable diesel, although levels have been steadily declining for the past month.

Gasoline inventories added over 2 million barrels with a bump in imports and a large but typical seasonal drop in demand, even as production slowed in line with the demand decline. Stocks increased in all PADDs except 5, despite the region accounting for all of last week’s import increase. Inventories there have fallen to late spring/early summer levels yet are still running ahead of the previous two years seasonally. Even with the increases elsewhere, all PADDs remain below average, and the total US balance still hangs below its 5-year range.