Refined Products Along With Oil Prices Are Moving Higher This Morning With Tightening Global Supply

After 7 straight weeks of declines that have knocked prices down more than 20%, refined products are moving higher along with oil prices this morning with tightening global supply and some Omicron optimism both getting credit for the early rally.  We saw nickel rallies for refined products get wiped out in 4 out of 5 sessions last week, so it’s hard to get too bullish about these gains until we see them last a whole day.       

RIN prices had avoided the volatility for most of the week, but crumbled Thursday and Friday following reports that the EPA was (finally) set to announce RVOs that would reduce the amount of renewable blending required by refiners. The sellers are back out this morning following a report late Friday that the EPA is also considering allowing new kinds of renewable fuels – perhaps even renewable electricity – to generate RINs, and could vastly increase the supply of those credits if true. On the other hand, if the agency does allow more products to generate RINs, that could be an excuse to increase the RVO. 

The clowns are exiting the Volkswagen: Money managers slashed their net length across the petroleum complex in the last week of November, which no doubt played a big role in the Black Friday rout, in addition to the volatility we saw last week. ULSD, RBOB and Brent crude all saw reductions in both long and short positions as hedge funds seem to be bailing out of the petroleum game, while WTI and Gasoil saw a huge influx of new short bets in addition to the long liquidation.

The moves were even more dramatic in carbon credits as money managers bailed out of both CCA and RGGI contracts at an unprecedented rate last week. A margin hike was given credit for part of the sharp move lower in CCA’s after a 6 month rally that doubled their value, since those funds prefer to trade with other people’s money as long as it doesn’t cost them much, and the reality that emissions have actually declined in recent quarters, which is lowering demand. 

Baker Hughes report no change in the total number of oil drilling rigs active last week, as an increase of 5 rigs in New Mexico offset declines in Texas, Louisiana and California.

Click here to download a PDF of today's TACenergy Market Talk.