RBOB Leads The Complex Lower, Chinese Refinery Runs Reach Record High, Environmental Credits Rally

RBOB gasoline futures are leading the energy complex lower for a 2nd straight day and have pulled back more than 15 cents/gallon from the 6-month highs set last week. If the move lower in RBOB continues it would snap a 4-week winning streak that saw prices rally by nearly 50 cents/gallon. That said, the weekly trend-line for RBOB that’s been in place since prices bottomed out in December is still safe and won’t come under threat unless we see a drop below $2.60, some 15 cents below current values.

China reported its first quarter GDP, exceeding many expectations with 4.5% growth in the quarter, with a big increase in export activity a key driver of growth.  Chinese refinery runs were reported to reach a record high as the new capacity that’s been built in the past year cranked up and helped to fill the supply gap left by the drastic change in Russian product flows. In fact, it seems like China has done too good of a job with its fuel exports as Asian refining margins have collapsed in recent weeks and will be forcing product shifts and likely run cuts in the near future.

While US refiners are faring much better than their Asian counterparts, domestic margins have come under pressure with the latest pullback in prices, and spreads are approaching their lowest levels of the year as a result. 

Adding to the concerns for refiners, despite the pullback in product prices, environmental credits have been seeing healthy rallies over the past several sessions. Both D6 and D4 RINs reached a 1-month high Monday, while California’s LCFS and CCA credits both have rallied to reach 6-month highs. The rally in CCAs looks like it’s driven at least in part by new speculative money entering the market, as net length held by money managers reached a 13-month high last week. 

Meanwhile, Washington state has delayed its first round of quarterly reporting for Cap & Invest program indefinitely due to ongoing technical difficulties caused by legislators passing a law they weren’t prepared to implement. 

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