It’s A quiet Start To Trading Wednesday With Refined Products And Brent Crude Trading Down Slightly In The Early Going

It’s a quiet start to trading Wednesday with refined products and Brent crude trading down slightly in the early going while WTI clings to small gains. 

The Middle East violence continues to spread with the US striking several targets in Iraq Tuesday, in retaliation against Iran’s forces targeting troops in the region. While the US response to Iran’s meddling is grabbing the headlines, Russia’s response could end up having more influence on the violence, and the oil market’s response to it. Meanwhile, China also has plenty at stake with the disruption to global shipping and is said to be working to de-escalate tensions in the region, even as they work to escalate them closer to home.  

The API reported a large draw in crude oil inventories last week of 6.7 million barrels last week, with production well closures from the cold snap no doubt contributing to the declines, while gasoline inventories increased by more than 7 million barrels and distillates were close to unchanged. We’ll get to see the impact of last week’s weather extremes in today’s DOE status report, although the refinery impact will be clouded by a few large plants starting extended planned maintenance around the same time. 

A Reuters report this morning highlighted a new petition from refiners, asking the EPA to limit who is allowed to trade in the RIN market. RIN prices meanwhile continued their slide, reaching a 3 year low at 70-71 cents/RIN for D4 and D6 values Tuesday. The EPA’s January RIN publication suggested the RIN surplus for 2023 may be more than 2 billion (or roughly 9% of the total obligation) thanks to the rapid influx of Renewable Diesel production (Which qualifies for 1.7 RINs/gallon, vs 1.5 for Biodiesel or 1 for ethanol). That gap may continue to widen this year unless producers are forced to slow down, or the EPA changes its targets, which seems unlikely in an election year, suggesting we could see RIN values continue to plummet.

That influx of RD supply is weighing heavily on West Coast basis values as RD now displaces nearly half of the traditional diesel demand in the region. You still can’t see those inventories or consumption estimates in the DOE’s weekly stats however, suggesting the data is severely understating PADD 5 inventory levels, and overall diesel demand in the US. 

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