Energy And Equity Markets Moving Lower

Energy and equity markets are moving lower again Thursday after one of the more wild and memorable trading sessions in history Wednesday. The about-face on most tariffs created a huge bounce in assets around the world, with ULSD prices rallying nearly 20 cents off the multi-year lows set in the morning, while RBOB gasoline futures managed to climb more than 17 cents off their lows on the heels of a 3,500 point rally in the DJIA and a 650 point bounce in the S&P 500.

6 cent losses for refined products this morning are a harsh reminder that we haven’t been let off the rollercoaster yet, as the world’s two largest economies continue to ramp up their trade war and blanket 10% tariffs are still going to take effect even while most of the nonsense math “reciprocal” tariffs have been delayed 90 days. Wednesday’s lows will set up new support levels on the charts and it seems likely we could be in for a period of very volatile sideways trading now that the risk of a total economic collapse seems to have been tempered.

The March CPI reading came in at a negative .1% as the healthy drops in energy costs offset inflationary gains elsewhere. Expect that trend to continue next month as the huge selloff in energy commodities should help offset some of the upward price pressure expected from the trade wars.

Largely lost in the chaotic trading action was Tuesday’s executive order targeting state environmental programs sent shockwaves through the California markets for LCFS and Cap & Trade credit Wednesday. Both contracts saw heavy selling early, with values touching multi-year lows as the idea that both programs could theoretically be eliminated added to the general feeling of panic that was gripping many global markets Wednesday morning. We did see a strong recovery in LCFS values throughout the day as reality sunk in that an executive order alone can’t change these programs, which already survived similar orders and a heavy legal challenge during the Trump administration in 2019. California’s governor shot back at the “glorified press release” vowing to not let it derail the state’s efforts.

The immediate impact at the racks of the drop in credit values was a drop of about $.04/gallon in the Cap & Trade and LCFS fees Wednesday. RIN values meanwhile rallied following the news as a drop in credit values (or the long shot of the programs being dropped completely) will spell (even) less biofuel production as many renewable producers depend on California’s credit subsidies (on top of RINs and Tax credits) to break even.

While the odds of killing California’s Green House Gas programs may be long, the order could certainly complicate efforts by other states to add programs of their own. New Mexico is scheduled to add a new LCFS look-alike in mid-2026, while at least 8 other states have similar programs in some form of the legislative approval process. Ironically, the executive order came on the same week that a new bill was proposed in both the U.S. Senate and House that looks to add a $1/gallon tax credit for Renewable Natural Gas powered vehicles, targeting the heavy-duty trucks. RNG production has exploded in recent years (See RIN Generation chart below) with producers taking advantage of lofty D3 RIN values and California’s LCFS credits.

Notes from the DOE’s weekly status report which was also largely ignored during Wednesday’s wild ride: See charts attached.

An increase in PADD 3 crude led to a build last week, despite the adjustment factor dropping to a 2025 low. Imports came down a bit but were outweighed by a larger drop in exports. Output dipped a little but is still running at seasonal highs. Refinery run changes were tame except for PADD 5 where we’re seeing some capacity come back online after multiple issues in the region over the past few weeks.

Diesel stocks fell 3.5 million barrels last week due to a pop in demand and are running under the last two year’s below average levels. PADD’s 2, 3, & 4 all slid last week with PADD 2 being the only area still holding above average levels.

Gasoline stocks have been declining steadily, coinciding with drops in demand over the past few weeks which have fallen below the previous two years. PADD’s 3 & 4 increased last week and are holding above average inventories along with PADD 1, while PADD’s 2 & 5 shed over 2 million barrels collectively. However, PADD 2 stock levels are about as far over their average as PADD 5 is under. PADD 5 declined off a March 10-year low set last week to mark a fresh April 10-year low this week.