Barron’s Senior Energy Writer Laura Sanicola and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.

Watch this week’s episode for insights into regional gasoline price fluctuations, the shift from winter to summer fuel blends, refining margin trends, and the challenges facing renewable diesel production amid changing government incentives.

Transcript:

LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here today with Denton Cinquegrana, chief oil analyst at OPIS. Denton, thanks for coming back here today with us.

DENTON CINQUEGRANA: Hey, Laura. How are you?

SANICOLA: Yeah. Good. Thanks. So, oil market’s finally getting a little bit of a breather. They’re flat to a bit up on the week. But where we’ve seen really big regional fluctuations is in gasoline prices. What’s going on in those markets?

CINQUEGRANA: Yeah. So we’re starting to see the transition from winter grade to summer grade gasoline, not just from the refiners, but the terminals are starting to kinda kick out that perishable winter grade gasoline and replace it with the summer grade gasoline.

The Midwest is kind of a hot spot right now just because in years past, those states have had a waiver from the EPA for one pound to blend up to 15 percent ethanol. This year, that waiver is not there, at least not yet. Many believe that that waiver is still gonna come through. But multiple states have kinda opted out of that. And now, as a result, you have a variety of Reid vapor pressure gasoline, and that just measures the volatility of the gasoline. But you have a whole variety of those available in the wholesale markets, which is not just creating a little bit of confusion as to, hey, what do I use to blend with ten percent alcohol, 15 percent alcohol? But it’s also created some really high prices here in the short term. I don’t think they’ll stick, but for right now, you might see some Midwest price spikes.

SANICOLA: And looking at the other part of the crude oil barrel, jet fuel, we’ve gotten some negative data from the airlines on domestic travel trends. And I’m curious how refining margins are holding up, and what are we seeing in the government data?

CINQUEGRANA: Yeah. The refining margins right now are are relatively stable. Diesel is still making decent returns. Gasoline has recovered for some pretty winter or some pretty poor winter lows. I think we’re gonna get to a season soon where they start to flip, where it’s more profitable to make gasoline than it is diesel. That might still be several weeks away, but that usually happens, you know, kind of in mid-April and early May.

In the EIA data, one thing that the Energy Information Administration data that caught my attention is that total product supplied, which is their product proxy for demand, dropped below 20 million barrels a day. Twenty million is kind of their breakeven line, if you will. But gasoline demand was down in the most recent week. Propane and propylene demand was down as well as their “other oils.”

On the other side, diesel was up with distillate. So that’s that’s a good sign. But, again, it’s a one week work. You know, we just need to keep watching this data to see if this is the start of a trend. And as we hear more and more about economic concerns, that might start to show up there.

SANICOLA: Another thing that caught my eye from the government data was the big drop off in year on year biofuel production. I think I saw renewable diesel production is down, I don’t know, 15, 20 percent year on year. What’s going on in those markets? Why is it so weak?

CINQUEGRANA: Yeah. Renewable diesel has been really interesting this year. Part of the reason why is at the start of the year, the blenders tax credit, one dollar a gallon for every gallon of biodiesel or renewable diesel that you blend gets a dollar tax credit. That has gone away. It’s not coming back. It’s being replaced with the clean fuel producers credit. That’s part of the IRA, the Inflation Reduction Act passed during the Biden administration. But you’re never gonna get that full one-dollar value.

So, you know, say, for example, using, soybean oil, which is soybean oil, which is still the most popular feedstock for making biodiesel and renewable diesel, those credits are, you know, significantly cheaper than that one dollar a gallon. So, you know, you don’t get as much government subsidy in producing renewable diesel. Plus, you know, there was this rush to make as much renewable diesel as possible just because you had the government subsidies, you had the blenders tax credit, you had high RIN prices, you had high California low carbon fuel standard prices. Those have all really dropped. So the profitability in making renewable diesel is not quite there anymore. We’ve seen a couple renewable diesel plants either close or reduce runs drastically.

Not as much is coming from, say, Louisiana to California anymore. It’s gotten to the point where traditional hydrocarbon diesel is actually cheaper than renewable diesel. Now throughout 2024 and when OPIS started tracking this in kinda mid to late 2023, renewable diesel is always cheaper than traditional hydrocarbon-based diesel because of the credits as well as the fact that all of it was going to California. So, in the near term, you’re gonna need either a spike in RIN prices to make renewable diesel much more profitable, or you’re gonna need more states to pass an LCFS-style program.

There’s plenty of states that have looked at it. There are plenty of states that have bills in their state senates, but they just seem to kinda die on the vine there and just get kinda get pushed to buy more important things. So, I don’t know if it’s growing pains or just a weak point for renewable diesel, but that’s where we are right now on it.

SANICOLA: Alright. Thanks so much, Denton, and thanks everyone for joining us. We’ll see you next week.