Midweek Energy Markets Mixed With Diesel Down And RD Organizing For New Opportunities

It’s a mixed start for energy markets to start Wednesday’s session with gasoline prices clinging to small gains, while crude oil and ULSD tick modestly lower.

Diesel prices added to Tuesday’s heavy losses after the API reported a large inventory build of nearly 3.5 million barrels last week, suggesting the supply squeeze that had pushed backwardation to the steep levels this summer was easing.

While diesel stocks were building, the industry group estimated small declines in crude and gasoline inventories of 566,000 and 1.2 million barrels, respectively. The DOE’s weekly report is due out at its standard time this morning.

Not dead yet: While Renewable Diesel production and imports have plummeted this year due to negative production economics, despite four different government subsidy programs available to produce RD and BIO haven’t been enough to offset high feedstock costs. However, two new RD production projects were just announced this week. Countrymark Co-op announced the completion of an expansion at its Indiana refinery that will allow coprocessing of RD via soybeans starting in September. Meanwhile, a trio of companies has formed a partnership to co-process RD at Par Pacific’s refinery in Hawaii by the end of the year. In both cases, the new renewables capacity will make up roughly 3% of the facilities’ nameplate capacity.

While the new volumes seem to be a bit of a drop in the bucket as they combine to make up just 1 tenth of 1 percent of total U.S. diesel production, and just over 3% of current U.S. RD production, the investments are significant in that they show the potential for coprocessing renewables at existing refineries and the benefits compared to pure conversions which have struggled to succeed in recent years.

More LCFS controversy brewing: A Politico article last week highlighted inconsistencies with how pricing agencies handled the LCFS program changes this year, which they estimate cost consumers more than $300 million. A memo from CARB was included with the article (even though the memo states it shouldn’t be released outside of CARB) that shows in detail how one pricing agency got it all wrong and posted prices that were much higher than reality. So far, no corrections for the incorrect postings have been issued.

Hate the humidity? If you live in the Midwest, you can blame it on ethanol this week as the annual corn sweat adds to excessive moisture in the air. While that is certainly an interesting (and uncomfortable) note for locals, the real impact is much less than the continued issues with runoff on waterways from constant corn-to-ethanol production.

Speaking of waterways, the National Hurricane Center is tracking another potential system off the Texas and Louisiana coast. While the location is concerning, given its proximity to half of the country’s refining capacity, it’s only given 10% odds of being named, so the odds of a major disruption remain low, but more onshore flooding caused by heavy rains will still be a concern.