Technical Trapdoor Opens Beneath Energy Markets As Diesel Leads Sharp Selloff

Energy markets are tumbling Tuesday after the technical trapdoor was tripped Monday, with crude and diesel futures reaching their lowest levels since August overnight, while RBOB gasoline futures are seeing their lowest values since March.

The first peace talks between Ukraine and Russia in 9 months are the headline of the day, and it appears Ukraine is giving Russian refineries the day off to celebrate with no new attacks reported in the past 24 hours.

The UKMTO has not reported any new vessel incidents near Hormuz, even though the IRGC is claiming it struck 4 more ships. Saudi Arabia meanwhile confirmed its East West pipeline was attacked yesterday, but says operations were not impacted.

The December ULSD contract has already dropped 60 cents so far in November, and more than 70 cents from its peak 2 weeks ago. ULSD weekly charts show the trend line since prices started spiking in March coming in just below the $4 mark this week, and we are just a few points away from testing that line for the first time since July this morning. If prices don’t find a bid around $4, there’s not much else on the chart to stop a drop until we get into the $3.70 range. Of course we’ve seen these optimistic selloffs look foolish more than once this year, so don’t be surprised if technical support and a dose of fundamental reality converge later this week.

The December RBOB contract is also testing its weekly trendline, which comes in just below $2.60, and below that the 200 day moving average at $2.50 would be the next natural stopping point. On the continuous chart the huge gap left by the start of the war and the winter/summer contract change between $2.09 and $2.30 will remain a downside target for some.

The big drop in ULSD has pushed crack spreads to their lowest levels since June for many U.S. refiners, which suggests the Q4 earnings won’t be as lofty as the record setting pace we just witnessed in the Q3 reports.

The big drop in ULSD is also apparently helping RIN values find a bid as bean oil prices have not followed their carbon counterpart lower this week, adding upward pressure to RIN values that need to make up the difference. We’ve seen RD values on the West Coast trading for huge discounts over the past week as multiple facilities return from maintenance just in time for the seasonal demand drop, which will add more challenges for producers riding the renewable rollercoaster.

The smoke (and mirrors) is clearing: Delek explicitly stated in its earnings call that its Tyler refinery will not increase capacity beyond 75mb/day, no matter what the Vice President said on the campaign trail. As we stated the day after the announcement, that facility is currently at the ceiling for earning a Small Refinery Exemption to the RFS, which is worth hundreds of millions of dollars, so there’s no way they’d go beyond that capacity. It will be interesting to see now that the election is over if the administration continues grasping at straws to lower fuel prices with largely farcical waivers such as on dyed diesel, or if they stop worrying about it now that the political damage has already been done.

Marathon reported level 1 flaring at its Renewable refinery in Martinez CA overnight, with no detail as to the cause in its filing with Contra Costa hazmat officials. That plant is a JV with Neste that produces around 48mb/day of RD and other renewables, after being converted from a 157mb/day traditional oil refinery 5 years ago.