Energy Futures Starting April At Near Breakeven Levels

Energy futures are starting April on a quiet note with refined products and crude oil contracts all hovering near breakeven levels for the day after a strong finish to March. A recovery rally in equity markets and an angry President both took some credit for Monday’s big gains that pushed most contracts to their highest levels of the month Monday, and technical indicators are suggesting there’s more upside ahead near-term now that resistance layers have broken down on the charts.

RBOB continues to look the most bullish on the charts with a push towards $2.50 looking possible in a late spring rally. Adding to the bullish feel for RBOB is that the largest gasoline importer to the East Coast is facing another round of 10% tariffs starting tomorrow, which will add an additional layer of complication to the annual RVP transition. Already basis values in NYH are trading at their smallest discounts to futures for this time of year than anything we’ve seen in the past 4 years (see chart below) and as long as the tariffs are in effect, there will be less winter supply available which will force suppliers to make choices between risking bringing in more product that could be unsellable May 1, or simply turning the tanks and selling more expensive summer grades ahead of the deadline.

While San Francisco spot gasoline differentials continued to climb Monday, Los Angeles values pulled back by nearly 10 cents on the day. Most of that trading happened before Marathon announced a week’s worth of planned flaring at its Carson facility starting on Thursday for an “Essential operational need” and Chevron reported it was planning 1 full day of maintenance starting Thursday for “Start up/shut down” of unnamed units.

The EIA’s Petroleum Supply Monthly report (the more accurate but much slower version of their weekly status report) showed the drastic decline in Biofuel production and imports in January driven in large part by the expiration of the Blender’s Tax Credit that offered $1/gallon on top of various other incentives for any biofuel blender regardless of where it was produced. See charts below. This data has already been foreshadowed by the EPA’s RIN generation reporting for January and February but offers another look at how dramatic the change has been, and helps explain why the West Coast went from swimming in excess biofuel a year ago to being very tight today. The new CFPC (AKA 45Z) that was intended to replace the BTC excludes imported fuels from receiving the credit and has a sliding scale depending on the carbon intensity of the fuel that heavily favors SAF production over RD and Biodiesel.