Stimulus Package Encourages Buying Across Asset Classes
Gasoline futures are trying to lead the energy market on another rally this morning, approaching two year highs and pulling the rest of the complex towards healthy gains. Crude oil and diesel prices are both moving higher on the day, but are still a couple percentage points away from reaching fresh highs of their own. The broader market has a risk-on feel as the $1.9 Trillion stimulus package seems to be encouraging buying across asset classes.
The DOE’s weekly status report Wednesday showed that refiners still have a long way to go to resume output levels to what we saw before February’s polar plunge, while crude oil producers have already returned to “normal” production levels. Refined product inventories remain tight across much of the country as the restarts continue to drag on, and demand picks back up. Diesel demand estimates in particular stood out last week, with the DOE estimating consumption at the top end of the five year range, which makes you wonder how strong it will get later this year once more businesses resume normal activity levels.
Michael Regan was approved by the Senate to lead the EPA Wednesday, a vote that garnered bipartisan support with a 66-34 vote. While Regan hails from a state that’s relatively neutral in the Big Ag vs. Big Oil battle known as the Renewable Fuel Standard, the market is sending clear signals that they expect the new administration to favor biofuels over fossil fuels. Regan set his priorities for the agency during the hearing:
Our priorities for the environment are clear: we will restore the role of science and transparency at EPA. We will support the dedicated and talented career officials. We will move with a sense of urgency on climate change, and we will stand up for environmental justice and equity,"
While it’s hard to argue that expectations for the new EPA to be tougher on refiners has contributed to the spike in RIN prices this year, there are also fundamental factors at play.
A surge in gasoline imports (that requires buying of RINs) and ethanol exports (that requires RINs be retired) both seem to be bullish factors in the recent D6 RIN run-up. For bio RINs, the surge in Soybean & Soybean oil prices to eight year highs points to the challenges producers will face in the coming years to find adequate feedstocks to produce their fuel.
While nothing seems to be slowing the RIN rally at the moment, it’s worth mentioning with the administrator highlighting the role of science as a priority that the National Wildlife Federation has challenged the legality of the RFS. The NWF argument provides evidence of severe environmental harm caused by excessive fertilizing, water usage and pollution caused by incentivizing farmers to turn marginal crop & wetlands into soybeans and corn that can be turned into fuel. That waiver petition is joined with the petitions of severe economic harm issues by refiners that will soon be argued in front of the Supreme Court.
Click here to download a PDF of today's TACenergy Market Talk.
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Energy Markets Rally Again Thursday After A Choppy Wednesday Session
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Energy Markets Rally Again Thursday After A Choppy Wednesday Session
Energy markets are trying to rally again Thursday after a choppy Wednesday session. RBOB gasoline futures are leading the push higher, on pace for a 3rd consecutive day of gains after finding a temporary floor Tuesday and have added 12 cents from those lows.
Equity markets are pointing sharply lower after a weak Q1 GDP estimate which seems to have contributed to a pullback in product prices over the past few minutes, but don’t be surprised if the “bad news is good news” low interest rate junkies start jumping in later on.
The DOE’s weekly report showed sluggish demand for gasoline and diesel, but inventory levels in most markets continue to follow their typical seasonal trends. Refinery runs held fairly steady last week with crude inputs down slightly but total gross throughputs up slightly as most facilities are now back online from a busy spring maintenance season and geared up for peak demand this summer.
Propane and propylene exports spiked to a record high north of 2.3 million barrels/day last week, which demonstrates both the US’s growing influence on global product markets, and the steady shift towards “other” products besides traditional gasoline and diesel in the level of importance for refiners.
The EIA acknowledged this morning that its weak diesel consumption estimates reflected the switch to Renewable Diesel on the West Coast, although they did not provide any timeline for when that data will be included in the weekly survey. The agency acknowledged that more than 4% of the total US consumption is now a combination of RD and Biodiesel, and that number is expected to continue to grow this year. This morning’s note also suggested that weak manufacturing activity was to blame for the sluggish diesel demand across the US, while other reports suggest the freight recession continued through Q1 of this year, which is also contributing to the big shift from tight diesel markets to oversupplied in several regions.
Valero kicked off the Q1 earnings releases for refiners with solid net income of $1.2 billion that’s a far cry from the spectacular earnings north of $3 billion in the first quarter of 2023. The refining sector made $1.7 billion, down from $4.1 billion last year. That is a pattern that should be expected from other refiners as well as the industry returns to a more normal market after 2 unbelievable years. You wouldn’t guess it by looking at stock prices for refiners though, as they continue to trade near record highs despite the more modest earnings.
Another pattern we’re likely to see continue with other refiners is that Renewable earnings were down, despite a big increase in production as lower subsidies like RINs and LCFS credit values sting producers that rely on those to compete with traditional products. Valero’s SAF conversion project at its Diamond Green joint venture is progressing ahead of schedule and will give the company optionality to flip between RD and SAF depending on how the economics of those two products shakes out this year. Valero also shows part of why refiners continue to disappear in California, with operating expenses for its West Coast segment nearly 2X that of the other regions it operates in.
Week 16 - US DOE Inventory Recap
Energy Markets Trading Quietly In The Red As Ethanol Prices Rally To Five-Month High
Energy markets are trading quietly in the red to start Wednesday’s session after a healthy bounce Tuesday afternoon suggested the Israel-Iran-linked liquidation had finally run its course.
There are reports of more Ukrainian strikes on Russian energy assets overnight, but the sources are sketchy so far, and the market doesn’t seem to be reacting as if this is legitimate news.
Ethanol prices have rallied to a 5-month high this week as corn and other grain prices have rallied after the latest crop progress update highlighted risks to farmers this year, lower grain export expectations from Ukraine, and the approval of E15 blends this summer despite the fact it pollutes more. The rally in grain and renewables prices has also helped RIN values find a bid after it looked like they were about to test their 4-year lows last week.
The API reported small changes in refined product inventories last week, with gasoline stocks down about 600,000, while distillates were up 724,000. Crude oil inventories increased by 3.2 million barrels according to the industry-group estimates. The DOE’s weekly report is due out at its normal time this morning.
Total reported another upset at its Port Arthur refinery that’s been a frequent flier on the TCEQ alerts since the January deep freeze knocked it offline and damaged multiple operating units. This latest upset seems minor as the un-named unit impacted was returned to normal operations in under an hour. Gulf Coast basis markets have shrugged off most reports of refinery upsets this year as the region remains well supplied, and it’s unlikely we’ll see any impact from this news.
California conversely reacted in a big way to reports of an upset at Chevron’s El Segundo refinery outside of LA, with CARBOB basis values jumping by more than a dime. Energy News Today continued to show its value by reporting the upset before the flaring notice was even reported to area regulators, proving once again it’s ahead of the curve on refinery-related events. Another industry news outlet meanwhile struggled just to remember where the country’s largest diesel seller is located.
Click here to download a PDF of today's TACenergy Market Talk