2 Largest Global Economies Negotiate In Trade War While Energy Market Takes Downward Turn

Energy markets are ticking modestly lower to start Friday’s session as markets around the world anxiously await more news on potential progress in the trade war between the 2 largest global economies.

Q1 earnings reports are validating the challenging market conditions for U.S. refiners and biofuel producers. Valero reported a steep decline in refining margins vs Q1 of 2024, even before taking a $1.1 billion impairment charge on its California operations during the quarter. In addition, the company’s Renewable Diesel segment saw its earnings drop by 174% year on year. Later comments from management suggests that the worst of the renewable losses may be in the rearview mirror as the market has made adjustments to deal with the new tax incentives, and credit values are on the rise.

P66 had similar statements in their Q1 earnings release that showed an even larger operating loss for refining operations, offset by stronger marketing earnings while Renewables were dragged into negative territory during the quarter due to the loss of government subsidies. No specific mention was made of the company’s plans to shutter their LA-area refinery complex later this year, but it will likely be brought up on the earnings call this afternoon.

RIN values spiked to their highest level in 19 months Thursday with D6 (ethanol) values hitting $1.04/RIN while D4 (bio/RD/SAF) values trading north of $1.12. Those earnings reports and comments from Diamond Green’s JV partners suggesting that RINs needed to add another 40-50 cents in order to offset the negative impact of the change from the BTC to CFPC tax credits seems like it contributed to the latest leg of the rally that’s pushed values up more than 30% in the past 6 weeks. The RIN generation data released last week by the EPA echoes those sentiments as domestic production for bio-mass based fuels has seen its largest drop on record, while imports are nearly non-existent since the CFPC doesn’t give any tax credit for imports of finished biofuels and used cooking oil feedstocks are currently banned as well due to fraud concerns.

Waiving the waivers: Midwestern states are scrambling to undo the damage they did to themselves by waiving the EPA’s ethanol waivers and thereby requiring a 7.8lb RVP gasoline next week, leaving refiners and shippers in limbo. Pipeline systems in the 6 states that decided to shoot themselves in the foot have already transitioned to 7.8lb gasoline stocks, but may be changing back to 9lb if those “emergency” waivers are granted months after they were given a chance at a do-over.

Meanwhile, the Supreme Court indicated it would likely issue a ruling on industry challenges to California’s waiver to the Federal Clean Air Act that allows the state to be more stringent on emissions, after hearing oral arguments earlier this week.

Total reported upsets in multiple units at its Port Arthur TX refinery Thursday after heavy rains caused a loss of steam to the facility. The upset lasted 5 hours, but no word yet if the facility has been able to resume planned rates after it was finished.