The Choppy Action Continues In Energy Markets With A Wave Of Selling In Friday’s Early Trading

The choppy action continues in energy markets with a wave of selling in Friday’s early trading as more concerns over a lower fuel demand in China seem outweighing any near term supply fears and pushing refined products towards a test of the August lows.

Diesel prices are leading the slide so far today after trailing RBOB’s lead for most of the week. There’s currently a double-bottom on the weekly charts around the $2.26 mark that will be the key level to watch in the coming weeks. If prices slide below that level, there’s a case to be made that we could see a run towards sub $2 diesel before year end.

The EIA Thursday highlighted the rapid growth of renewables production last year in its annual Renewable Diesel capacity report. At the end of 2022, there were 17 plants active in the US making RD and other advanced renewables with a combined capacity of 196mb/day. A year later, 5 new facilities had been added, and production had increased to 282mb/day, marking a 47% increase.

Perhaps most interesting although it continues to fly under the radar is that Delta Airline’s Monroe refinery in Trainer PA was added to the facility list and is now producing 1mb/day of renewable diesel supply, taking advantage of the EIA’s recent change to allow biofuels to be processed in multiple locations and still qualify for RIN credits. While the small volume produced at that facility is so far immaterial, the “bio intermediate” rule update from the EPA that came at the end of 2022, along with opening the door to canola oil as an authorized feedstock, will continue to allow new supply sources and many more processing facilities at traditional refineries to come online in the years to come. Of course, that flexibility is not good news for many “traditional” biofuel producers who are now looking at having to shut operations as a drastic drop in RIN and LCFS credits over the past couple of years has driven many to the edge of insolvency.

While the RFS and LCFS laws that govern these products are uniquely American, similar challenges are most certainly a global issue, with Europe today beginning a new law to impose tariffs on Chinese biofuel imports to prevent dumping. That excess Chinese supply, particularly when their economy is slowing, will add to the distillate overhang plaguing the Pacific basin.

Just making it up as we go: California’s governor continues to grasp at straws to figure out why his war on refineries continue to drive fuel prices higher, calling for new mandates and mulling state-owned refineries after his prior plans to limit profits failed to be approved by his own party.

Mexico marked a big milestone this week, sending its first ever LNG cargo from its East coast through the Panama Canal to Baja California to supply its domestic market. You may ask why they don’t just build a pipeline instead, and well, there’s a pretty good reason that won’t be done. Pemex officials are also claiming that their “new” Dos Bocas refinery is processing crude oil, just 2 years after the President’s grand opening of the facility.