Last Week's Gains for RBOB and Diesel Compromised as Energy Futures Continue to Move Lower

Energy futures are moving lower for a 2nd straight day, with RBOB futures taking back roughly half of last week’s gains already while diesel prices have given back a third.

Equity markets are a mixed bag with the Nasdaq reaching fresh record highs, while the DJIA is in the midst of its longest losing streak in 6 years. The FOMC starts its last meeting of the year today, with almost everyone expecting another quarter point rate cut to be announced tomorrow. The CME’s Fedwatch tool shows 97% odds of a 25 point cut tomorrow, up from just 62% odds a month ago. While tomorrow’s outcome seems like a foregone conclusion, there’s plenty of uncertainty on the FED’s plans next year, particularly with the new administration which may increase volatility in equity markets after an extended period of calm.

Besides the demand destruction in China theme -that makes a convenient excuse anytime the market drops - warmer weather in Europe has led to TTF natural gas prices dropping sharply to their lowest level in 2 months, and reducing the need for switching to diesel, which seems to be weighing on ULSD and Gasoil contracts this week.

A fire broke out at HF Sinclair’s Tulsa OK refinery Monday evening due to an “operational upset”. The fire was extinguished, and ENT is reporting this morning that restart efforts are underway, suggesting major damage may have been avoided. Group 3 basis values have been the weakest in the country for both Gasoline and ULSD over the past week as the region is net long on supply most of the year, and particularly throughout the winter, and while refiners in the region typically enjoy advantaged crude oil pricing, they do not enjoy export options to send their excess production out of the market.

The fallout from two of Russia’s “Shadow Fleet” tankers breaking part in the Black Sea this weekend continues, with a serious oil spill spreading to the Russian coastline increasing the risk of both an ecological disaster, and of new sanctions to try and limit the damage caused by these unauthorized vessels.

With just 2 weeks left in the year, the expiration of the $1/gallon Blender’s Tax Credit (BTC) looms large over the renewable and refined fuel industries. Renewable lobbying groups are working frantically to push congress to tweak the new Clean Fuel Production Credit with favorable terms for their constituents, while others are requesting that the BTC stay in place until the Treasury finalized the CFPC rules. Calumet’s Montana Renewables group said it had already received its IRS approval to register for the new program, opening the door for increased subsidies for its SAF production, which could go as high as $1.75/gallon depending on the carbon reduction of its fuel. Domestic producers of SAF have the most to gain from the new law, IF they can prove lower carbon intensity scores, while international producers like Neste and Braya are the early losers since imported fuels don’t qualify for the CFPC.

Let’s try that again. It appears that bidding for Citgo will start fresh, after a judge in the case re-opened the data room to allow bidders another chance to review the company’s data. The timeline for the new round(s) of bidding are unclear and will no doubt be met with further legal action like the failed attempt by Elliott Management to take over the company earlier this year.