Choppy Action Continues For Energy Market

The choppy action continues for energy markets this morning as diesel futures continue to try and lead the rest of the complex on a freeze-induced rally, while finding the other contracts to be reluctant participants so far.

The EIA this morning highlighted how residential energy use has increased well beyond their forecasted levels for all major sources, including heating oil, as the country experienced its first real winter in 4 years. While the cold winter has no doubt pushed diesel prices higher, market bears will be quick to note that once this latest cold snap ends, the forecast calls for above-average temperatures for most of the country over the next few weeks.

The API’s weekly estimate showed builds in crude oil and gasoline stocks of 3.3 and 2.8 million barrels respectively, while diesel inventories were estimated to decline by 2.7 million barrels. The DOE’s weekly report will be released at noon eastern time today as the agency has changed its holiday release schedule from prior years when delayed data would be published at 11.

A Reuters article this morning said the API joined the AFPM in an unusual move of joining forces with 2 renewable fuel groups in lobbying the new administration to increase the RFS mandate for 2026 and beyond. RIN values have already climbed to a 15 month high prior to those efforts as a sudden drop in renewable production and imports caused by the transition from the BTC to CFPC keeps the supply of RINs in check, while several lawsuits over small refinery exemptions still linger. In Trump’s first term we saw RINs initially climb north of $1 post-election only to collapse below 10 cents after the EPA sided with refiners over renewable groups.

California’s LCFS credits had their biggest 1 day sell-off ever on Wednesday following a report from CARB late Tuesday night that the new rules that had taken effect Jan 1 had been “disapproved” by the state’s Office of Administrative Law. The revised LCFS rules for this year had reduced the carbon intensity limit for the year, and increased the actual carbon intensity score for traditional fuels, which amounted to the deficit rate nearly doubling at the start of the year and pushing credit values higher. So far the fall in credit values is being reflected in the $/gallon prices at the rack, but the change in deficit calculations is not. Early speculation is that the delay is technical in nature and CARB will be able to fix the currently unknown details that caused the disapproval, while any material change will need to go through the public comment period.

This surprise came less than a week after California regulators approved a plan to require the state’s refiners and marketers to begin reported 3 month projections of their planned fuel transactions. In other words, California’s regulators are now requiring the industry to tell it what they’ll be doing 3 months into the future, while the state can’t tell the industry what the actual rules are 1 month in the past. See the attached notices on both topics.

Valero reporting unplanned flaring at its McKee refinery in the TX panhandle that lasted most of the day Wednesday, which is so far the only refinery upset reported to the TCEQ during the latest deep freeze.

HF Sinclair reported losses in its refining and renewables segments during the 4th quarter that wiped out the majority of the company’s earnings for the year. While the renewables segment did perform better than in Q4 of 2023, it wasn’t enough to pull that segment into positive territory, even while the BTC was still fully in play. On the refining side, both the MidCon and West Coast operations were in negative territory for the quarter.