Tropical Storm Sara Is Expected To Be Named Later Today As It Moves Towards Honduras

Energy markets are attempting a modest rally for a 3rd straight session, but the action so far this week has lacked conviction with early moves commonly reversed later in the day.

ULSD futures led a recovery rally Wednesday following the EIA’s monthly Short Term Energy Outlook that offered reasons for optimism after a challenging year for diesel suppliers. After 2 years of declines, the EIA (more accurately the firm the EIA hires to do their analysis) is forecasting a recovery in US diesel demand in 2025 due to increases in manufacturing activity and the truck movements that requires. The projection suggests that total diesel consumption will increase about 150mb/day (around 4% in total) primarily made up of petroleum diesel, while renewable demand growth stalls after 3 strong years and biodiesel demand shrinks for a 2nd year. The EIA also highlighted the pending closures of Lyondell’s Houston Refining and the P66 LA refinery in the next year, and predicted a recovery in US natural gas prices as more LNG export capacity starts to come online in 2025.

The IEA’s monthly oil market outlook continued to be the most bearish of the 3 monthly oil reports, suggesting ongoing weak demand from China and the return of Libyan oil to the global market both set the stage for an over supplied market in 2025.

Tropical Storm Sara is expected to be named later today as it moves towards Honduras. That storm is forecast to hook north over the Yucatan this weekend, and then east towards Florida next week.

Yesterday forecast models agreed that this storm would head to the West Coast of Florida south of Tampa, but today the models are mixed with the Euro models favoring a more northernly path towards the big bend region of Florida, while the US GEFS models suggest a path that has it potentially missing the state completely to the south. The good news is none of the models suggest this will be a major storm thanks to the water in the gulf cooling off this time of year and it does not appear to be a threat to energy infrastructure along the Gulf Coast at this time.

The API reported modest builds in refined product stocks last week with gasoline inventories up 312,000 barrels and diesel stocks up 1.1 million. Crude oil inventories dipped a lucky 777,000 barrels according to the industry estimate. The DOE’s weekly status report is due out at 11am central today. There’s been plenty of anecdotal evidence of a demand slowdown in the past week across large parts of the US as the first rounds of winter weather swept across the country and the fall harvest demand came to a screeching halt, so it would not be surprising to see more inventory builds this week if product exporters weren’t able to offset that slowdown.

In political football news:

RIN values have dropped nearly 10 cents in the past two days after an Anti-RFS congressman was tapped to take over the EPA next year.

A Dutch appeals court overturned a landmark climate ruling against Shell, which had previously ordered the company to cut its carbon emissions by 45% in the next 6 years, which may end the fire-sale the company had been undergoing to shed assets that didn’t fit the mandate.

On the other side of the coin, both California and Germany have voted in the past week to place more restrictions on their environmental programs to try and prop up credit prices that have been floundering due to the rapid increases in renewables production over the past couple of years.

A FT article highlights what might change in the EV market under the new administration, while Rivian and VW announced they would join forces yesterday to try and avoid being run over.