Refined Products Near Break Even Levels, Crude Oil With Small Gains

It’s a quiet start to the week for energy markets with refined products hovering near break even levels while crude oil contracts cling to small gains. Negotiations in Saudi Arabia over a potential cease fire agreement between Russia and Ukraine are ongoing, although real results are proving elusive so far.

Money managers had conflicting opinions on the petroleum complex last week with bullish moves in RBOB and Brent that increased net length by more than 75,000 combined contracts, while WTI, ULSD and Gasoil saw reductions of more than 55,000 contracts. Both NYMEX ULSD and its European equivalent are now sitting with a net short (betting on lower prices) position held by the large speculative category of trader. In another sign of the waning conviction on diesel prices, open interest for ULSD has dropped to its lowest level in a year even as the open interest in RBOB is sitting near its highest level of the past 4 years.

Speculators also had mixed opinions on environmental credits last week with California’s LCFS and the federal D4 (Bio/RD) RIN contracts seeing a small increase in bets on higher values, while D6 (ethanol) RINs along with both California and Washington’s Cap & Trade credits both seeing small reductions.

California’s credit values have been under heavy selling pressure this year as CARB’s plans to make both the LCFS and Cap and Trade programs more stringent have met various delays. RIN values meanwhile saw another healthy rally last week after the EPA’s latest RIN generation data showed that the collapse in Renewable Diesel and Renewable natural gas production continued in February. See charts below.

Baker Hughes reported a net decrease of 1 oil rig drilling in the US last week, while the natural gas rig count increased by 2. Oklahoma saw a net increase of 2 rigs on the week while Texas decreased by 1.

Phillips 66 reported more unplanned flaring at its LA-area refining complex over the weekend listing “essential operational need” as the cause. LA spot values have rallied significantly over the past week after unplanned events at 4 of the 5 refineries in the region.