Another Wave Of Selling Is Gripping Energy Markets To Start Wednesday’s Session

Another wave of selling is gripping energy markets to start Wednesday’s session, all but erasing the gains from the 3 day rally that started last Thursday. RBOB and ULSD contracts are back challenging the low end of their trading ranges, with a bigger slide of 20+ cents looking likely if prices can’t find a bid before the long weekend.

The latest slide in refined products has pushed crack spreads near their lowest levels of the year, and perilously close to the levels we saw last December when multiple US facilities cut run rates to avoid losing money. The fact that this is happening in August is particularly troubling as the RVP transition is just beginning and the driving season hasn’t even ended yet.

Traders seem to be completely shrugging off inventory draws across the board reported by the API Tuesday afternoon. Crude oil stocks were estimated to be lower by 3.4 million barrels, gasoline inventories shrunk by 1.9 million barrels and distillates dropped by 1.4 million barrels. The EIA’s weekly report is due out at its normal time this morning. One key figure to watch is whether last the record-setting diesel export figure reported in the previous report is sustainable or a one week wonder.

A Bloomberg article citing IEA data that suggests European diesel (gasoil) demand has fallen below levels we saw during the COVID lockdowns is also contributing to the bearish sentiment. A structural shift away from diesel-powered automobiles along with sluggish economic activity were both cited as causes for the weak demand, which is happening at exactly the wrong time for the record volume of diesel exports from other nations scheduled to hit the continent in August.

But will they still hurt if you step on them by accident? Lego announced plans to phase out petroleum products in its bricks over the next 8 years, replacing them with more expensive renewable feedstocks. Renewable plastics aren’t a new concept, but will increase the already fierce competition for feedstocks to turn soybeans and other vegetable oils into transportation fuels and other goods. No word yet on which subsidies Lego’s renewable blocks will qualify for.

Speaking of which, a Reuters article highlights how US imports of “used” cooking oil from China are set to reach a record high after Europe imposed anti-dumping tariffs to protect their struggling bio fuels producers. 3 weeks ago Reuters also noted that the EPA was investigating multiple biofuel producers for potentially using fake used cooking oil that’s actually coming from palm tree plantations. There is expected to be a rush of renewable imports into the US prior to the expiration of the Blender’s tax credit at the end of the year since the new Clean Fuel Production credit won’t apply to imports, and also requires producers prove their carbon intensity improvements.

Motiva reported an upset at a hydrocracking unit Tuesday, but it appears the incident did not require a reduction in run rates and had no visible impact on spot prices. The big news from the USGC Tuesday was the first day of winter-grade RBOB pricing which pushed prompt index prices down by nearly 18 cents/gallon.

The NHC is tracking two storms in the Atlantic this week, neither of which has a high probability of becoming a supply disrupter. One system moving east of Bermuda will be a non-issue, while the other is still given just 20% odds of being named, but could become a problem if it does develop.