Global Sanctions, Refinery Woes, And A Cold Winter Weigh On Energy Prices

Diesel futures are trying to lead the energy complex lower for a 2nd straight day, while RBOB gasoline prices are hovering near break-even after reaching their lowest level in nearly 5 years overnight.

Gasoline futures traded down to $1.7908 overnight, marking the lowest level since February 2021 when Winter Storm Uri knocked every refinery in TX offline and pushed values up from the low $1-$1.25 range they’d been stuck in due to the lingering effects of the COVID lockdowns. If support near this level fails to hold, there’s not much on the charts to prevent a slide into the $1.50s.

ULSD futures are once again testing the 200 day moving average and look poised to make a run at the October low around $2.11 if this layer of support on the chart doesn’t hold. A cold snap sweeping large parts of the country is acting as a double-edged sword for diesel contracts. On one hand, the cold is contributing to stronger heating demand, and causing some utilities to supplement their electricity output by burning diesel. On the other, demand for traditional #2 ULSD for transportation needs is hampered by less travel, and more switching to #1 blends across the northern tier.

It appeared that part of the reason for the big sell-off Monday were reports that India would continue buying oil from Russia to feed its growing refinery network despite the recently expanded sanctions. Diesel exports from India to Europe have become an important alternative since 2022, even though those products can no longer be delivered to satisfy the ICE Gasoil contract due to a new rule attempting to ban the refinery loophole on Russian supplies.

PBF reported unplanned flaring at its 160mb/day Torrance CA refinery overnight, just a few hours after the company told regulators it was planning 3 days of maintenance at the facility that would create flaring from 12/10 through 12/10. The cause of the unplanned flaring was listed as “unknown” in the AQMD filing.

Delek reported an upset in a boiler that occurred over the weekend during maintenance at its 77mb/day Tyler TX refinery.

Pemex reported flaring in multiple locations at its 340mb/day Deer Park TX refinery early Monday morning.

How about this for a theory: With the threat of U.S. attacks on Venezuela foreshadowed by the President and a buildup of naval assets, is it possible that the U.S. Treasury will find a way to gift Citgo’s assets to the country if there is a regime change? This may seem farfetched, and would no doubt require remuneration for the bond holders at the center of a years-long battle for the Citgo’s assets, but the price tag around $8 billion is just 2/3 of the recently announced bailout for U.S. farmers, so it's certainly not beyond their capacity.