ULSD Futures Touched Their Lowest Since November 2021

Energy markets are finding a bid this morning as a dozen refineries along the Gulf Coast nervously await Francine’s landfall, and bargain shoppers start to step in after prices reached fresh multi-year lows Tuesday.

ULSD futures touched their lowest since November 2021 with a low print of $2.0549 while RBOB futures hit their lowest level since February 2021 at $1.8584 before finally finding a bid. With several refiners cutting output in Louisiana to minimize the potential impact of hurricane Francine, it’s easy to explain a short term bounce at these low levels, but longer term charts continue to suggest there’s a risk of more selling ahead.

The good news of the eastward shifts in Francine’s paths is that it moves the worst of the storm away from the large refineries in the Lake Charles and Pt Arthur hubs, and now puts the Baton Rouge-area plants on the clean side of the storm. The bad news with the shift East is it brings the NOLA-area plants into the impact zone. As it stands, roughly 18% of US refining capacity will feel some impact from this storm, but based on the size, forward movement and perhaps most notably the landfall hitting wetlands before refineries, it does not appear that this storm will be a refinery killer like Ida in 2021. Then again, with more refineries once again knocking on death’s door (see the list below) if there is major damage particularly to a smaller plant, the owners may not rush to spend money on repairs given that the Louisiana facilities typically don’t enjoy the crude sourcing advantages of their Texas neighbors.

In addition to Francine, the NHC is tracking 4 other potential storm systems in the Atlantic this week, 3 of which are given low odds of developing, while 1 is given 90% odds. The good news about that high probability system is that forecasts suggest it should hook north as it crosses the Atlantic and not threaten land.

The drop in energy prices is good news for the consumer as it limits the impact of stubbornly high inflation. The August CPI coming in near expectations of 2.5% for the year and .2% for the month, which would be much higher if it weren’t for the drop in gasoline and diesel prices of more than 10%.

Third time’s the charm? Neste cut its earnings outlook for a third time this year as a surge in biofuel supply and the pending expiration of the $1/gallon BTC have hammered current earnings and the forward outlook for margins. Perhaps most notable is that biofuel feedstocks haven’t followed the recent slide in diesel prices, which is further squeezing the margins for producers. Yesterday the EIA highlighted the rapid growth of renewable diesel supply and started publishing new data in its monthly short term energy outlook to which adds Bio and RD consumption to total distillate demand estimates to provide a more clear picture of total consumption. The agency predicts that 9% of total US diesel consumption in 2024 will be made up of biofuels, up from 5% in 2022.

Flint Hills Reported a fire at its Corpus Christi refinery Tuesday in a waste water treatment facility. Given the location of the fire, and the short duration of reported flaring, it appears that the major operating units were not damaged.

PBF continues to have struggles at its Torrance CA refinery, reporting the 3rd upset in as many days to regulators. As with most required filings, it’s very difficult to gauge the impact of these upsets, but so far basis markets haven’t continued their recent rally despite this news.