Energy Futures Are Rallying Wednesday After Touching 6-Week Lows During A Heavy Sell-Off Tuesday

Energy futures are rallying Wednesday after touching 6-week lows during a heavy sell-off Tuesday. Inventory draw downs are getting some of the credit for the early bounce, while the predictably unpredictable saga of the war in Gaza is contributing to the back and forth action with headlines simultaneously highlighting ceasefire talks, and a new offensive.

The spread between RBOB gasoline in Chicago vs LA was nearly $1/gallon yesterday with Chicago-land values commanding a 65-cent premium to futures, while LA spot CARBOB held at a 30-cent discount. That spread will begin shrinking today as power has been restored to the Exxon Joliet refinery, and LA CARBOB is up more than 20 cents/gallon after transitioning to August delivery cycles.

The API reported inventory draws across the board last week with crude stocks down nearly 4 million barrels, gasoline inventories down by 2.8 million barrels and diesel inventories down by 1.5 million barrels. The EIA’s weekly report is due out at its normal time. We expect to see PADD 2 refinery runs drop by close to 200mb/day due to the downtime at Joliet and a recovery bounce in demand following last week’s holiday hangover.

The Atlantic remains quiet with no tropical activity forecast for the next week, but heavy thunderstorms are sweeping across large parts of the US, which will no double act as a damper on demand in the back half of this week. On the supply side, heavy rain and thunderstorms targeting the Beaumont/Pt Arthur and Lake Charles LA regions today puts roughly 15% of US refining capacity at risk for disruption. While these storms aren’t nearly the threat of a hurricane, we’ve already seen 2 of the refineries in that area knocked offline in July due to power issues, and we know the TX grid is proving vulnerable, so it will be a concern over the next 24-36 hours.

RIN values reached their highest levels in 6 months Tuesday, with both D4 and D6 values climbing above $.67/RIN. The rally comes as industry groups attempt to lobby congress this week to reinstate the biodiesel blenders tax credit, which is set to be replaced by the clean fuel producers credit at the end of the year. The main differences with the new CFPC rule is that it requires proof of reduced carbon intensity in order to qualify for more credit, and won’t apply to importers.

The import flows of biofuels is becoming more of a focus lately as European Union officials have slapped anti-dumping tariffs on Chinese biodiesel to alleviate pressure on local producers who have been facing negative margins for nearly 2 years and have also opened an investigation into how that Chinese bio is being certified to qualify for the various government credits that subsidize the industry.

Meanwhile, Renewable Diesel producer Braya Renewable Fuels has been charged with a dozen different health and safety violations at its converted Newfoundland refinery after an explosion that killed 1 worker and injured 7 others in 2022. In the US, another distributor settled with the EPA for more than $1 million in penalties over violations of the renewable fuel standard and other clean air program requirements.

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