Energy Market Prepares For New Tariffs On Canadian And Mexican Imports Tomorrow

It’s a mixed bag for energy markets to start the week as furious negotiations on tariffs and the war in Ukraine dominate the headlines.

As of this morning, it appears that new tariffs on Canadian and Mexican imports will begin tomorrow forcing the industry to both scramble in preparation, while also anticipating another 11th hour deal that will make any expensive planning options become losers.

The EPA said Friday that both South Dakota and Ohio have opted out of this year’s 7.8lb RVP requirement on gasoline stocks that will hit 6 other midwestern states who chose to forego the EPA’s 1lb RVP waiver for ethanol blends in order to promote more usage of E15. Midwestern pipeline systems will start shipping that new lower-RVP product in March to meet the end-of-April deadline which could also be rendered meaningless if Congress passes a new federal waiver.

Money managers were bearish oil and gasoline contracts last week, but bullish on diesel just in time for diesel prices to fall to their lowest levels since Christmas. The large speculators erased nearly 99,000 contracts worth of net length from their holdings in WTI, Brent and RBOB, while adding 12,000 contracts of ULSD and Gasoil. Long liquidation in Brent and new short positions in WTI drove the majority of the change on the week.

It’s worth noting that a large short position held by speculators is seen by some as a contrary indicator that as any rally can spark short-covering (BKA buying) as those funds need to cover losing positions. For example, the last time WTI had this much short interest by hedge funds was January of 2024, when prices were hovering around the $70 mark like today, and then they rallied to a high of $87 in March before pulling back.

In environmental credits, money managers were adding to long positions in D4 RINs, which didn’t prevent those values from erasing all of February’s gains over the past week, while D6 RINs saw a small move lower in speculative positions as new shorts entered the market when prices reached their highest level in a year. California’s CCA positions also saw modest buying by speculators, while LCFS credits saw funds liquidating long positions after the OAL’s decision to make CARB re-file their planned changes to the program.

Baker Hughes reported a decrease of 2 oil rigs active in the U.S. last week, snapping a streak of 4 consecutive gains that had pushed the count to a 5 month high. The natural gas rig count increased by 3 on the week, bringing the total count back to where it was at the end of 2024.

The EIA this morning highlighted how refinery closures and a tick higher in demand will combine to reduce U.S. petroleum inventories in 2026. The report anticipates that biofuels will make up 9% of the diesel supply mix next year, up from around 8% from 2024, and suggesting a modest recovery for the biofuel industry after huge drops in production and imports this year.