Diesel Futures Lead The Energy Complex Higher

Diesel futures are leading the energy complex higher to start Wednesday’s session as a severe cold snap sweeps across parts of the U.S. and Europe. The moves so far are modest at around 1%, and don’t change the mixed technical outlook that suggests we’re in for more back and forth action in the near term.

There continue to be conflicting reports on whether or not OPEC and Friends will delay their output cut reductions which are scheduled to start winding down in April, but have already been delayed multiple times. No doubt the negotiations between Russia and Saudi Arabia on that deal, which coincide with U.S. negotiations with Russia in Saudi Arabia, are a bit complex.

Exxon reported an upset at is Joliet refinery Tuesday morning after “Flare Gas recovery equipment froze up”. The report suggests the equipment was thawed out and restarted within about 6 hours. While that upset didn’t seem to roil Chicago basis markets Tuesday, it’s the first of what is likely to be several hiccups at facilities across the middle of the country that are facing severe cold this week. The Texas Panhandle and Oklahoma refineries seem to be most vulnerable to the combination of sub-zero temps in parts of the country that don’t regularly experience them although no upsets have been reported so far. CVR’s Coffeyville KS refinery meanwhile is in the midst of an earlier-than-expected turnaround after the last round of severe cold in late January damaged a hydrotreater.

Speaking of refinery upsets, the PBF refinery in Martinez CA remains offline following a fire on Feb 1, with an uncertain timetable for repairs since local officials have been blocking the company from accessing the damaged units. Gasoline differentials in the region have pulled back over the past few days after peaking at a $1/gallon premium following the fire, while diesel differentials continue to move higher. See charts below.

Ethanol prices have rallied to 5 month highs this week on the back of stronger corn prices, which traded above $5/bushel for the first time since October 2023 yesterday. A robust export market is getting some of the credit for the recent strength in grain prices, with concerns about tariffs seeming to contribute to some stockpiling as we’re seeing in other asset classes. The big question for ethanol markets this year is what the EPA will decide to do with E15 and the pending end of the 1lb RVP waiver for summer gasoline sales in 8 midwestern states that would require refiners in the region to make a 7.8lb RVP conventional grade vs the 9lb they’ve been accustomed to producing for decades.

The EPA meanwhile is ordering its employees back to the office full time effective February 24. The note published by the agency Tuesday highlighted an average attendance rate over the past year of just 37%, with Mondays and Fridays seeing just 9% of workers showing up to the office.

Reminder that the weekly inventory reports are delayed this week due to the Presidents Day holiday.