Fri 19Oct2018: Gasoil trends down to $712 with backwardation widening quite a bit for spot to almost $5/MT while x/j spread has widened $4/mt to $12.25/mt at the same time as Heating oil crack has exploded today to almost $28/Brl. Refiners are cracking for diesel as gasoline crack barely hovers $10/brl. No sign of increasing maintenance in US either meaning that margin are simply too attractive despite fact that both WTI and Brent crude have turned into a nearby spot contango and almost flat through April. In US Biodiesel, margins have disappeared as BOHO has narrowed close to 10 cents per gallon while D4 RINs remains at a paltry 32.5 cpg which is artificially depressed because of E15 and continued Trump administration assaults on RFS. In EU, as expected with strengthening BOGO, we are seeing premiums on FAME come back to +190 on the Spot and +165 for Q4. RME remains difficult to find at less than +235 premium Vs FAME for Q4. POGO has strengthened following moves by Indonesia to increase biodiesel blend but with continued weakness in Bean oil, difficult to see the light quite yet as only 47% of US Soy crop harvested. Yuan made a record low at 6.9411 and probably next stop is back to 7 while in India the rupee recovered to 73.33 late on Friday – the world now marches towards full Iran sanctions in 2 weeks.

Advertisements

Mon 15Oct2018: Gasoil retrenches to $715 despite lots of volatility and RSI stabilises around 61 after Hurricane damage assessment to Gulf platform practically nil while on-land damage much more serious but did not affect oil trend. However, geopolitical hurricanes are swirling-about and difficult to see how we can break $700 on downside despite Equity-market setback and Heating Oil crack at $25.95/Brl while Canadian crude being discounted heavily Vs WTI helping US refineries curtail imports. Maintenance season not suiting strong distillate demand +8.2% y-o-y, interestingly gasoline demand was -2.6% y-o-y. EU Biodiesel was pretty quite last week following the Argus London Biofuels conference where generally the mood was buoyant with increasing mandates across the board from 7 to 10% in EU under RED2 but a lot of anxiety remains over Argentina SME imports. It should be noted that Biodiesel demand has been strong all year in EU being led by Eastern Europe members who are playing catch up to meet existing biodiesel mandates. EU FAME showing +160 for Q4 still while RME showing +390 or a $230/MT premium difference – definitely a luxury fuel! Meanwhile in US, RINs should be well supported today as BOGO $10/MT stronger @-$55 while POGO follows -$155 as Indonesia pushes for higher domestic biodiesel blend to curtail distillate imports. China RMB remains weak at 6.93 while India Rupee is still under pressure at 73.80 as oil imports is stressing forex.

Wed 10Oct2018: Gasoil at $738.75 front month after a brief rally on Monday on account of Hurricane Michael – Traders now worried about Florida demand being cutoff and accumulating stocks of distillate with such strong Heat crack margin of now $27.20/Brl. Gasoil backwardation widening today a bit signalling that this may be a bear trap. In EU Biodiesel, RME premium now at +322 over ICE gasoil spot with a widening spread to FAME of 155-165. Crushers in Europe are crushing soy instead of rape because of high soymeal demand, this is creating a tight pipeline for rapeseed oil that maybe with us until the end of the year. In US biodiesel, diesel flat prices has improved production margin once again as RINs stable around 33cpg despite the drop in Ethanol RINs that will probably percolate to D4. The next milestone in US will be RVOs at end of November and talk is that EPA is unlikely to increase Biodiesel mandate to compensate Small Refinery Exemptions. CNH reaches 6.93 and INR 74.25 indicating continued $ strength but this also will increase domestic input costs & eventually hurt import volume in these huge Asian economies and any small GDP downticks will have big impact on rest of the world.

Mon 08Oct2018: Gasoil continues its consolidation dropping in early Asia trading another $10/MT to $735 with RSI still at a 66 so can see ICE dropping to low $700’s before its next move higher with backwardation already widening slightly in early trading in Asia for z18/j19. Heat Crack finished at $25.95/brl. Trump administration already announced its next move on RFS with its intention of raising ethanol blending limit to 15% – this will have a large impact on RINs for 2019 and will NOT lend support to Biodiesel D4 RINs. FAME premium in EU bounced back about $5/MT to +160 spot and +120 for Q4 with spread of RME at +150-160 over FAME. Looks like Brazil moving convincingly to the right with an almost outright win of the presidential candidate Bolsonaro in the first round. This should support the Real unless we see another surprise before the second round on Oct 28. Latin America will have to Fasten their seatbelts as Brazil economy is the elephant in the room and any volatility could signal another EM crisis.

Thur 4Oct2018: ICE Gasoil still well supported @$745/Mt front month and still showing $8.75 backwardation to April. Heat Crack margin widening still to $26.36/Brl as down-time season upon us and crude is building (EIA showing large crude build in past week) while product supplies will come down although we should remember that crude oil supplies in Cushing, OK are half of what they were last year. RSI on crude and even gasoil indicates we should break slightly for a consolidation prior to moving any higher, I think this break be short lived as geopolitical considerations. Biodiesel margins in US remain quite supportive even in the absence of BTC and despite low RINs at 34cpg – seems like everyone shipping to California where LCFS carbon credit making new high prices every day. Meanwhile in EU, FAME premiums remain under pressure falling to +110 for Q4 down $40/mt since Sep1 as winter demand falters while RME premiums are up $50/mt to +325. We should be almost 1/2 done with harvest by Monday but rains are slowing farmers down – watch for this inflection point – I usually look for 70% completion as gut-slot bottom on beans and would expect that to be earlier this year. Important to note that 57% of farmers (Farm Journal) are storing this harvest unpriced! This worries me as this means we could see long tail harvest pressure into 2019. Bean oil took a beating today, down almost 1% which is no surprise considering crushers in US still enjoying record crush margin at 1.50/bushels.

Mon 1Oct2018: Gasoil continues to move higher now at $740 as we are up 12% since mid-year while Heat Crack remains well above $25/brl and gasoil backwardation to Apr19 is $9/MT! FAME spot premium remains at +$50/mt over Q4 FAME while RME premium to FAME widening now to $157/mt over FAME for rest of Q4. Meanwhile in US, Heating Oil remains pretty flat throughout curve to Apr19 but Biodiesel crush margins bounced back strongly these last few sessions on account of flat price. Bean oil is having difficulty following the strong push of mineral oil as harvest in N.America is still ongoing at 30% while crush margins for beans is still a strong 1.42/bushels providing strong incentives for bean crushers. With confirmed high grain stocks, there is certainly no shortage of Bean oil in sight. NAFTA was finally resolved over the week-end although having little impact on Biodiesel but giving some hope to China trade talks, at least temporarily.

Thu 27Sep2018: Gasoil creeps higher as expected at $715 as Brent continues to climb while Heat crack climbs over $25/brl perhaps in response to strong demand. Two big news in Biodiesel on both side of Atlantic. In US the Trump administration is going to free up Ethanol blending to 15% in all seasons which is going to mean lower RINs on Ethanol and perhaps correspondingly lower blending in Biodiesel so RINs spread should widen but perhaps at lower levels which may explain recent drop in D4 RINs value despite bounce in SBO. Whereas in EU, the commission has decided not to assess provisional tariffs on Argentina which should resume large imports of SME into Europe and also correspondingly put less pressure on refiners to buy RME this winter. BOGO closed at -$71/MT while POGO is -$171 which is exactly where it should be. The Argentina story is actually good news for PME as it will improve blending perspectives. Bio US margins have come down dramatically in the last week but the stock report to be issued tmrw could add more bearishness as China trade situation is not improving with latest report of a record monthly trade US deficit of 76 Billion – see below Bloomberg article.

  https://www.bloomberg.com/news/articles/2018-09-27/tariffs-start-to-drag-on-u-s-economy-as-trade-deficit-widens

Mon 24 Sep2018: Gasoil breaks higher to $707 as Brent trades above $80 and Heat crack remains at $24/brl after a week end of no OPEC decision in Algeria. Looks like everyone satisfied with pricing and happy to let the profits run which means we are headed for stock building into the end of the year. Correspondingly BOGO and POGO weaken significantly @-$75 and -$164 respectively. Biodiesel arbitrage is wide open but premium in EU dropped $10/mt to +305 for spot RME while FAME is pricing at +155 over ICE Gasoil. Meanwhile in theoretical bio US margins dropped as Bean oil rose but still remain reasonably good despite a large drop in RINs (35cpg).

Wed 19Sep2018: Gasoil tracks higher to $688 while Brent makes a high of $79 today and EIA showing a draw in crude inventories & gasoline while distillate stocks higher – I guess Heat crack should take a hit but remains at $23.06/brl. In US Biodiesel RINs took a dive down to 39cpg following BOHO and BOGO drop as record large oilseeds harvest in US continues to pressure vegoil. Bean crushers in US still enjoying $1.50/bushels of margin ( $55/MT). Logistics this harvest are going to be complicated as westward rail will not be able to load beans to go to China – watch this impact later in season as storage will become critical. Palm also dropped in another sanguine session taking Dec POGO to -$147.25. Meanwhile in EU fame and RME premiums were higher by $5/mt bucking trend as biodiesel tightness in the spot continues to keep RME/FAME premium at $130/mt for Q4 – stronger Euro helping. News on the China talks simply not good at this moment and NAFTA negotiations with Canada also not going well. Nevertheless Emerging markets all experienced a recovery in their currencies – I think short lived especially if Brent breaks on the higher side.

Tue 18Sep2018: Gasoil bounces up to $687.50 despite API showing a build in crude and distillate with backwardation to Dec widening a bit to $2.75/MT. HO was all over the place today but still marginally higher. RINs for Biodiesel ended up trading at 40.5cpg with good margins at producer level as demand for both diesel and biodiesel remains strong. Not much has changed in both FAME and RME today in EU despite BOGO being weaker after Palm collapsed following US trade issues with China leading POGO to -$136.75 for Dec. Meanwhile emerging markets show a bit a life with INR a bit stronger at 72.78 while CNH ending up at 6.85.