Forward Curves for Energy Contracts Largely Stagnant Despite Global Volatility

Energy markets are ticking lower Friday after diesel prices tried to drag the complex higher Thursday with moderate success. Gasoline prices had been leading the rally earlier in the week, but were unable to keep pace with the cold-induced run for distillates, despite the record travel forecast for next week.

While concerns of a potential World War 3 scenario have added a touch of volatility to the markets, the charts below show that forward curves for energy contracts have not seen much change. The overhang of oil supply and refining capacity globally seems like it continues to act as a buffer to any potential supply threat from Russia or the Middle East, and China’s slumping demand means that excess is unlikely to be used up anytime soon.

The recent price action has given a small lift to refinery margins, although they’re still hovering close to their lowest levels of the past 3 years, with any facility that doesn’t have export capacity still at risk for a long hard winter, with voluntary run cuts likely in several markets if basis values plummet as they’ve done in recent years.

RIN prices dropped to 61 cents/RIN for both D4 and D6 contracts Thursday, marking a 2-month low just 10 days after values had hit their highest levels of the year just below the 80 cent mark. A rollercoaster ride is nothing new for RIN participants, and indeed the swings so far pale in comparison to what we’ve seen several times over the past decade. In addition to the nomination of an EPA administrator who is a proven critic of the RFS, the EPA’s data on RIN generation released Wednesday shows that producers continue to create a record level of the credits despite numerous biofuel producers being forced to cut production due to weak economics. Charts below.

Renewable Jet Fuel (AKA SAF) is smashing production records, but still only accounts for less than 2% of the total bio-mass-based distillate production in the country. SAF production is expected to ramp up quickly in 2025 with the Valero/Diamond Green plant converting half of its production to SAF and away from RD and continue growing through the back half of the decade as new mandates in Europe will force demand.

P66 was charged by the DOJ with illegally dumping wastewater into the LA sewer system Thursday, at the same facility the company announced they would shutter at the end of next year. The potential fines in the case are relatively small, so they’re unlikely to have any impact on the company’s timeline for that facility.

Today’s interesting read courtesy of Reuters: How renewable energy is at the heart of the Adani bribery scandal.