Estimated Decline In Domestic Fuel Demand Due To Removing EV Incentives

It’s a quiet start for energy markets as prices have moved back to the middle of their winter trading range, with neutral technical indicators suggesting that we’re in for a few weeks of sideways trading as the market tries to digest a great deal of uncertainty and traders bide their time until the next breakout occurs.

The API estimated a decline in diesel inventories last week of 3.75 million barrels, while gasoline stocks increased by 1.9 million barrels and crude oil stocks rose by 2.9 million barrels. The DOE’s weekly report is due out at its normal time this morning. PADD 3 refinery run rates will be key to watch over the next couple of weeks as the impacts of last week’s deep south deep freeze may show up today, and the shutdown of Lyondell’s Houston Refining facility should begin showing up in the numbers next week.

Calumet will have to wait to get its $1.4 billion DOE loan for its SAF expansion project after the new administration required further review. The punted political football of renewable fuels is leaving a great deal of uncertainty for producers of biofuels, while lawyers are no doubt excited about the fees they’ll be able to charge as these decisions get tied up in court for the next several years.

4th quarter earnings releases will start this week, and with crack spreads approaching 3 year lows at the end of last year – and several companies issuing warnings on declining profits – it seems pretty obvious that the results will not be strong. Similar to the biofuel producers, refiners have plenty of political uncertainty to deal with, particularly those that rely on discounted Canadian crude imports or Latin American exports to stay afloat given the threat of tariffs impacting those flows. On the other hand, the potential rollback of fuel economy standards announced Tuesday, in addition to the attempts at removing EV incentives both may contribute to a delay in the long term decline of domestic refined fuel demand.

Ukraine continues to pound away at Russian energy infrastructure, with Lukoil’s 360mb/day NORSI plant (the 4th largest refinery in the country) reportedly hit overnight. While the international market has largely shrugged off the attacks over the past year as Russian oil exports and excess refining capacity elsewhere have lessened their impact, the new sanctions on Russian ships means any production losses may have a more meaningful impact going forward.