Energy Complex Turbulent Near Year's End; Refined Fuel Inventories Rise as Crude Declines

After a 2 day sell-off, energy prices are ticking higher to start Wednesday’s session, leaving the complex in limbo as we approach year end. The FOMC’s announcement at 1pm central is expected to be the big story of the day, with just about everyone planning for a 25 point rate cut, while the plans for 2025 remain very much in doubt.

The API shows continued builds in refined fuel inventories. The industry group estimated gasoline stocks increased by 2.4 million barrels last week, and distillates ticked higher by 700,000 barrels. Crude oil inventories meanwhile were estimated to decline by 4.7 million barrels on the week. The DOE’s weekly report is due out at its normal time this morning, and then will be delayed by a day each of the next two weeks for the holidays.

The EIA this morning published a look at gasoline sulfur credits in the US, part of a 10-year-old EPA program aimed at reducing sulfur in gasoline from 30 ppm to 10 ppm. These carbon credits generally fly under the radar as they’re not able to be traded by just anyone (unlike RINs and other environmental credits) but only by the refiners and importers of the gasoline itself.

RIN prices continued their recent decline Tuesday, following reports that year-round E15 sales will be approved at the Federal level in a year-end funding bill, which will theoretically increase the supply of ethanol and their D6 RINs in coming years. On the flip side, it appears that an extension of the Blenders Tax Credit for Biodiesel and RD was not included, meaning the industry will have to quickly adopt the new Clean Fuel Production Credit (AKA 45Z) despite a lack of detail from the Treasury department on how that credit will actually work. One nuance with the new CFPC program is that it required producers to register on or before January 1, 2025 in order to claim the credit next year, which means there are going to be some very uncomfortable compliance folks who suddenly realize they shouldn’t have procrastinated on that paperwork.

It's not just the US that’s expecting major changes in biofuel laws in the coming year. Europe’s new mandate for SAF starts off with a 2% minimum requirement, that’s likely to draw exports from the US since it appears producers can qualify for CFPC even if they don’t consume that fuel in the US. In other words, your tax dollars may just end up subsidizing the EU’s SAF mandate. We’ll see for sure once the treasury finalizes their guidance. In addition, Indonesia (The 4th most populous country in the world) also starts a new biofuel mandate, although like the US the details of that program seem to be fluid.

A new refinery in Texas started operations this week, adding to the rapid growth around the Corpus Christi area. The catch is it’s a lithium refinery operated by Tesla, with a stated goal to produce enough lithium to power 1 million EV batteries a year.

Motiva reported an upset at its Port Arthur chemicals complex Tuesday, but it appears that issue did not impact operations at its adjacent refinery.