Sub-Zero Temperatures Put Inland Refineries At Risk Of Upset

It’s a mixed bag to start Tuesday’s trading with NYMEX contracts picking up where they left off in Monday’s abbreviated holiday session. RBOB and WTI are seeing small gains this morning while diesel futures are seeing small losses.

A major winter storm is set to sweep much of the country starting later today and is expected to be the most severe in the parade of 6 different storms that have hit over the past 2 weeks. Sub-zero temperatures are expected overnight for the next few days in places like West Texas and Oklahoma that aren’t used to them which puts several inland refineries and terminals at risk of upset. The Gulf Coast refineries meanwhile are only expected to see temperatures dip below freezing for a few hours, so the risk of damage to the country’s key producing region seems muted at this point.

Brent crude oil futures did see a modest tick higher in Monday’s session (since they still don’t celebrate Washington’s birthday in London) after damage assessments suggest the Caspian pipeline system that transports 1.25 million barrels/day of Kazakh crude through Russia may need 2-3 months to repair damage from Ukrainian drones. Early reports estimate that 70% of that oil flow should be able to continue via alternate routes however and Brent is seeing a small move lower today. That pipeline system, which carries oil for several U.S. companies, has been excluded from western sanctions on Russia, and it's possible that the timing of the strike was meant to send a message that excluding Kyiv from peace negotiations could put new targets on the table that may have been previously considered off limits.

The EIA published a look at the changes in Renewable Diesel consumption and production on the West Coast this morning, highlighting how Oregon and Washington are following in California’s footsteps with clean fuel programs that incentivize its use. The report doesn’t mention why consumption of RD seems to have peaked in Q2 of 2024, although supply issues in the back half of last year were definitely at play. For 2025 there could be more switching back to traditional diesel in several U.S. markets as some producers are underwater with the loss of the BTC, and others are chasing the larger incentives to produce SAF instead of RD.

One major complication for RD producers has been reports of fraudulent Used Cooking Oil which is actually mixed with virgin palm oil to produce RD and SAF. Those reports are a key reason why UCO imports don’t qualify for the new Clean Fuel Production Credit in the U.S. A Reuters article Friday highlighted efforts by Malaysian government officials to crack down on the fakes.

Baker Hughes reported an increase of 1 oil rig and 1 natural gas rig active in the U.S. last week. Rig counts for both oil and gas have stagnated the past couple of years, as record high output levels have kept a lid on prices, and limited takeaway options restrict many producers.