Heavy selling in refined products Monday drove gasoline prices to their lowest levels in 6 weeks, and have left diesel prices testing the lower end of their November range.  A catalyst for the move was unclear, although the large speculative length held in energy contracts led many to speculate that the selling was liquidation by money managers now that the bull trend seems to have faltered.

Given the relative volumes – crude oil trading volume is roughly 10 times that of refined products – it would make sense that prices may have a larger swing than we might see with the same volume of crude being liquidated, if in fact that’s what was happening.  So far in 2017 money managers , aka speculators, have been surprisingly resilient unlike what we’ve seen in the past few years.  We should find out soon if they’re able to withstand some selling short term to continue their bet that prices will rise.

RBOB futures are bouncing back this morning, the only contract currently trading in positive territory, and are currently testing the 50 Day Moving average from the opposite direction after having broken below that support yesterday for the first time since October.  If that resistance around the $1.70 mark holds today, this looks like a dead cat bounce and will set up the next downside target at the 200 day moving average some 7 cents below current levels.

Ethanol RINs dipped to 86 cents/RIN, their lowest level in 3 weeks, after reports that the White House would host a meeting this week with Senators eager to change the RFS.  As has been the case for the past several months, the move in RIN prices corresponded with a move in gasoline crack spreads which fell to their lowest level in 3 months, proving yet again what a double-edged sword the renewable market can be for US refiners.

It’s not clear if some sort of deal on the RFS was an expectation in exchange for getting the tax bill through the Senate, but the timing is certainly interesting if not coincidental.  While plenty of negotiating on the tax plan is still to come as the House and Senate bills are reconciled, early reports suggest that refiners may be big winners since their income will be taxed less, while wind and solar companies may have their incentives eliminated.

Unconfirmed reports that the beleaguered Santa Cruz refinery in Mexico was restarting more units is also likely to have weighed on US crack spreads is it suggests that the export demand may decline in the coming weeks.  On the other hand, there are also reports that a crude unit at Exxon’s Beaumont TX refinery may be offline for 2 months following a fire last week, reducing output by around 100,000 barrels/day.

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