The Energy Complex Seems To Be Taking A Breather This Morning

The energy complex seems to be taking a breather this morning after Russia cutting natural gas supply to its neighbors overwhelmed the potential demand destruction from new COVID lockdowns and pushed prices higher yesterday. As of now, gasoline futures are trading on the green side of flat while diesel and American crude oil contracts are posting ~1% losses to start the day.

The spread between the expiring May and June ULSD futures contracts continued to set records yesterday with the former trading as high as 71 cents above the latter. A combination of a dismal short-term supply outlook and end-of-the-month trading volatility is taking credit for yesterday’s sharp increase. Physical markets scrambled to offset the change in futures prices with 5-20 cent gains or losses, depending on which futures month each market is referencing.

The API’s national inventory estimate published yesterday afternoon didn’t seem to move the needle in overnight trading. The Institute estimated a moderate build of 4.7 million barrels of crude oil last week while gasoline stockpiles drew down by almost 4 million barrels. The total diesel inventory for the country grew by just under 500,000 barrels, however the more interesting number traders will be looking is the inventory levels in the New York market. If the Department of Energy publishes new all-time lows this morning, we will likely see another surge in prompt month diesel futures.

Crude and heating aren’t the only oil markets the war in Ukraine is distressing: many different cooking oil supplies are tight around the world, causing some countries to ban exports. While this might not affect refined product prices outright, it is pushing some blendstock and renewable credit prices higher. Corn futures, the underlying product influencing ethanol and D6 RIN prices, is trading at highs only seen once in the history of the contract. Soybean oil, the main price driver for biodiesel and D4 RINs, is setting new all-time highs this morning. It will be interesting to see, now that food scarcity is contributing to higher energy prices, if more start asking the question “should we be growing crops for fuel?”

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