Refinery Restart Undercuts Diesel Rally Amid EU Sanctions Fallout

Diesel prices fell out of bed Tuesday morning, dropping more than 6 cents/gallon and wiping out Monday’s strong gains. The rest of the energy complex is moving marginally lower, but trailing the move in diesel by more than 1%.

Headlines are pinning the slide on fresh demand concerns as the U.S. and EU square off in their latest trade drama, while reports that P66 was able to successfully restart its 260mb/day Bayway NJ refinery seems to be contributing more directly to the slide as the largest and last refinery with direct connections to the NY Harbor is back online after a weather-induced shutdown a week ago.

The drop in diesel prices is happening despite news that a tanker scheduled to haul diesel from India to Europe left empty after the latest round of EU sanctions targeted the refinery loophole that was helping Russian oil reach the global market. India has accounted for more than 15% of Europe’s diesel imports since Russian supplies were restricted, with the country’s refineries taking advantage of discounted Russian crude. While the new rules will certainly put a few wrinkles into the global shipping market, there should be more than enough capacity to supply Europe’s demand from Middle Eastern and U.S. refineries, along with the new Dangote facility in Nigeria.

The S&P 500 reached a fresh record high Monday, while the DJIA has been reluctant to make the push into record territory. As has been the case for the past few months, energy prices are largely shrugging off moves in equity markets on a daily basis. The Q2 earnings releases are starting this week, and while oil and gas producers have already issued warnings given the drop in prices this spring, refiners should see an improved outlook after a brutal 6 month stretch that pushed 2 more facilities to plan permanent shut downs.

The storm system moving off the NE coast of South America Monday has dissipated and the NHC is predicting no storm activity for the next 7 days.