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Mixed Oil Market Messages Include a Change in RIN Tones

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The oil market showed mixed results on Monday, with gains in the finished products offset by a loss in WTI. The latter is on especially precarious footing at or near the psychological $45 support level.

Front month (August) WTI traded in a dollar range for most of the day, though it could not muster enough strength to follow the gains in products. The dollar was again strong, as it has been in recent days (actually, most days since the historical “Brexit” vote), which also limited how much oil could move.

The offsetting gains in products were likely more of a function of crack spread buying (refinery hedging) or time spread buying (long the front, short the back), as both of those spreads have been extremely weak in recent sessions (as have the finished products, in general). WTI will need to hold the $45 to prevent a possible long liquidation run down to the lower-$40s.

August WTI settled at $44.76 on Monday, down 65-cents and the lowest settle since early May. RBOB gained a penny, which was the strongest oil commodity on the board, reversing the recent trend (last week, the front month RBOB contract was down over 14-cents). Despite this moderate, perhaps short-lived, strength, the RBOB contract is now roughly four cents below Heating Oil … in the summer.Also grabbing market attention recently has been the surging price / cost of RINs (Renewable Identification Numbers, or credits to show renewable fuel blending). The value of RINs is an extra cost to refiners who introduce fuel into the market, and are thus subject to producing these credits. The increase in RIN value lately puts an extra burden on said refiners, especially those that don’t blend or have marketing systems that require ethanol. The point being continued weaker gasoline numbers and higher RIN values may lead to economic run cuts later in the year.

Published by PAPCO, Inc. (PAPCO)

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