Signs Of Tariff Easing While Conversations On Economic Fears Continue

Energy markets are trading lower for a 3rd straight day after failing to push through technical resistance to start the week. Economic fears seem to be at the forefront of the conversation after

yesterday’s negative GDP reading and low ADP payroll figure, but a small bounce in equity prices following further signs of tariff easing has helped energy markets pull back from their overnight lows.

In addition to the demand concerns reports are swirling that Saudi Arabia is quietly warning that they are preparing to further increase production in a move some believe is intended on teaching Kazakhstan and Iraq a lesson (similar to what the Saudi’s did to Russia 10 years ago) while others think the move is partly a nod to the U.S. in an effort to boost their military and nuclear support.

April was the worst month for WTI since 2021 with prices dropping $13/barrel or roughly 19% on the month. The week start to May puts crude oil prices on track to test April’s lows just north of $55, and if that support fails to hold there’s an argument we could see crude drop all the way to $40 before finding longer term support. For reference, the last time the Saudi’s taught a lesson in price wars, WTI dropped all the way from a high of $106/barrel in July 2014 to a low of $26.05/barrel in February 2016.

HF Sinclair posted a net loss for the first quarter, with negative earnings in refining and renewables offsetting a solid quarter from their marketing, lubes and midstream segments. While the renewable segment lost $39 million during the quarter, that was essentially the same performance as the first quarter of 2024 when the BTC was still in effect, so you might call that a moral victory.

CARB published its Q4 2024 LCFS program data Wednesday, offering the last look at the “BEFORE” information when imports of various biofuels, and used cooking oil to make them, were still eligible for a $1/gallon tax credit. Credit generation ticked higher in all of the major categories except for biodiesel which declined throughout the year, but the rate of increase was slower for Renewable diesel, renewable electricity and renewable natural gas. The other notable change was that deficits created from traditional fuel usage continued to decline, a pattern that is expected to shift this year as the drastic drop in biofuel production leads to more traditional diesel usage. While the LCFS credit bank reaching a record for a 16th straight quarter is certainly noteworthy, the market reaction was muted so far as the bigger news is when CARB’s revised rule changes will be made official.

Commentary on the DOE’s weekly status report below. See charts attached.

Crude inventories lowered on increased exports and refinery runs but were held to a smaller draw due to the adjustment adding a positive 515 thousand barrels/day. Stocks are still hovering around the lower end of the 5-year range but have pulled ahead of the previous two years over the month of April. Refinery runs were up in all PADDs except 2 and are currently at a seasonal 5-year high, trending into a period of increased activity over the summer months. PADD 1 run rates have returned to normal after refineries went down for maintenance in February. PADD 3 runs moved higher and continue to hold above the 5-year range for a sixth consecutive week. PADD 5 stays well below average despite a couple weeks of increases. However, this lower level may become the new normal as refiners continue to signal their intent to pull out of the California market.

Diesel stocks saw a slight pop on a drop in demand but have been in a seasonal slide since late February and are now at the low end of their 5-year range. PADD 2 levels are dropping rapidly – they’ve gone from the top of the 5-year range to under it in about a month after spending the first quarter of the year hitting seasonal highs.

Gasoline stocks have yet to break their downtrend, falling for the 9th straight week with losses to imports and production. Down demand last week suggests an increase to inventories, but the drop is off a ’25 high from the week prior so there’s probably a bit of disconnect between the two readings.