The Race To Take Advantage Of Environmental Incentives Continues

Market TalkFriday, Nov 17 2023
Pivotal Week For Price Action

Gasoline prices reached new lows for the year Thursday as another heavy wave of selling hit the energy complex. RBOB futures touched a low of $2.09/gallon yesterday, and Gulf Coast CBOB prices dropped below $1.90/gallon meaning some retail prices around Texas could see prices around $2.50 just in time for Thanksgiving. Crude oil prices also reach a 4-month low during the sell-off, before a modest recovery rally started overnight. 

After weeks of being the weak link in the energy chain, ULSD prices are actually holding up relatively well during this latest slide and are currently trading 8-cents above the 3-month low they set last week and hovering around the 200-day moving average. 

The recent price drop has caused speculation that OPEC & Friends may extend or increase their output cuts at their November 26th meeting given that Brent crude is currently sitting roughly $5/barrel below the low end of their price target.  

Both WTI and Brent have slipped into a slight contango at the front of the forward curve, a dramatic shift from the steep backwardation we saw a month ago, and a sign that physical supplies are healthy and/or recovering. The change in refined products over the past month has been less dramatic than crude, with a modest backwardation remaining for RBOB and ULSD futures. (See charts below)

The race to take advantage of environmental incentives continues: The EPA’s recent ruling on allowing bio-intermediates to qualify for RIN generation last year has opened up numerous new possibilities for RD and SAF production at refiners that previously only ran crude oil.  Prior to that ruling a bio-fuel had to be completely made at a single location, but now the soybeans or other feedstocks can be turned to oil in one location and then that oil can be refined elsewhere. North Dakota announced its first soybean crushing plant this week that will send its processed oil to Marathon’s Dickenson for processing into RD.  

Meanwhile, Braya Renewables – a Dallas based firm who bought the shuttered Come By Chance refinery in Newfoundland – announced a new deal with Macquarie Energy Canada to buy feedstocks and sell its output. That Macquarie deal is similar to one arranged earlier in the year with Vertex, who bought one of the handful of refineries Shell probably wants back now and shows how the banks are getting back into the energy trading arena in a big way after many were forced out following their bailouts during the financial crisis.

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Market Talk Update 11.17.2023

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Pivotal Week For Price Action
Market TalkTuesday, Nov 28 2023

Values For Space On Colonial’s Main Gasoline Line Continue To Drop This Week

The petroleum complex continues to search for a price floor with relatively quiet price action this week suggesting some traders are going to wait and see what OPEC and Friends can decide on at their meeting Thursday. 

Values for space on Colonial’s main gasoline line continue to drop this week, with trades below 10 cents/gallon after reaching a high north of 18-cents earlier in the month. Softer gasoline prices in New York seems to be driving the slide as the 2 regional refiners who had been down for extended maintenance both return to service. Diesel linespace values continue to hold north of 17-cents/gallon as East Coast stocks are holding at the low end of their seasonal range while Gulf Coast inventories are holding at average levels.

Reversal coming?  Yesterday we saw basis values for San Francisco spot diesel plummet to the lowest levels of the year, but then overnight the Chevron refinery in Richmond was forced to shut several units due to a power outage which could cause those differentials to quickly find a bid if the supplier is forced to become a buyer to replace that output.

Money managers continued to reduce the net length held in crude oil contracts, with both Brent and WTI seeing long liquidation and new short positions added last week. Perhaps most notable from the weekly COT report data is that funds are continuing their counter-seasonal bets on higher gasoline prices. The net length held by large speculators for RBOB is now at its highest level since Labor Day, at a time of year when prices tend to drop due to seasonal demand weakness. 

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Pivotal Week For Price Action
Market TalkMonday, Nov 27 2023

After Another Black Friday Selloff Pushed Energy Futures Sharply Lower In Last Week’s Holiday-Shortened Trading

After another Black Friday selloff pushed energy futures sharply lower in last week’s Holiday-shortened trading, we’re seeing a modest bounce this morning. Since spot markets weren’t assessed Thursday or Friday, the net change for prices since Wednesday’s settlement is still down more than 6-cents for gasoline and almost 5-cents for diesel at the moment.

OPEC members are rumored to be nearing a compromise agreement that would allow African producers a higher output quota. Disagreement over that plan was blamed on the cartel delaying its meeting by 4-days last week which contributed to the heavy selling. The bigger problem may come from Russia, who announced plans last week to increase its oil output once its voluntary cut agreement ends now that price cap mechanisms are proving to be ineffective

While an uneasy truce in Gaza held over the weekend, tensions on the Red Sea continued to escalate with the US Navy intervening to stop another hijacking and being rewarded for its efforts by having missiles fired at one of its ships.  

RIN values came under heavy selling pressure Wednesday afternoon following a court overturning the EPA’s ruling to deny small refinery hardship waivers to the RFS. Those exemptions were a big reason we saw RINs drop sharply under the previous administration, and RINs were already on due to the rapid influx of RD supply this year.

More bad news for the food to fuel lobby: the White House is reportedly stalling plans to allow E15 blending year-round after conflicting studies about ethanol’s ability to actually lower carbon emissions, and fuel prices. Spot prices for ethanol in Chicago reached a 2.5 year low just ahead of the holiday.  

Baker Hughes reported the US oil rig count held steady at 500 active rigs last week, while natural gas rigs increased by 3. 

The first of perhaps several refining casualties caused by the rapid increase in new capacity over the past two years was reported last week. Scotland’s only refinery, which has a capacity of 150mb/day is preparing to shutter in 2025.

The CFTC’s commitment of traders report was delayed due to the holiday and will be released this afternoon.

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Pivotal Week For Price Action
Market TalkWednesday, Nov 22 2023

Week 47 - US DOE Inventory Recap