American Intervention in Iran Considered as Energy Futures Continue to Climb

Energy futures are trading decidedly higher this morning as the U.S. shifts from “we’re not involved” to “will our big bomb work?” in less than 72 hours. Prompt month distillate futures are up over 8 cents per gallon (3.25%) while its gasoline counterpart is trading with relatively meager gains of 2.7 cents (1.17%). The crude oil contracts (WTI and Brent) are up about $1 per barrel (2.4 cpg equivalent) so far this morning.

Today’s trading session will halt at 1:30 CDT this afternoon in observance of the Juneteenth holiday. Banks are closed and major price reporting agencies will not be publishing assessments until tomorrow.

It’s all quiet in the Atlantic Basin so far this month: the National Hurricane Center doesn’t forecast any notable cyclonic activity for the next week between Africa’s west coast and the Atlantic seaboard. While June is historically the most likely month to feature the first named storm of the season, the combination of cooler ocean temperatures, wind shear in the Gulf of Mexico and the Caribbean, and above average surface pressure will likely push the first named storm to July.

Worried or posturing? The EIA reported the U.S. Department of Commerce’s Bureau of Industry and Security notified both Enterprise and Energy Transfer that they will need to apply for special export licenses to continue exporting ethane to China. The BIS sited that the product, largely used to make plastics, poses an “unacceptable risk” of being used for Chinese military manufacturing. Ethane exports as a whole are expected to drop by 50% over the next two years, barring further negotiations between Washington and Beijing. 25% of the US’s fleet of Very Large Ethane Carriers are stalled along the Gulf Coast; three empty and two all dressed up with nowhere to go.

Notes on the DOE report:

Total crude stocks including the SPR balance spent the year tracking ahead of 2024 until last week’s 11.5 million barrel draw dropped them ~5 million barrels below that level. Heavily increased exports along with an unseasonable drop in imports contributed to the large draw. Refinery runs fell quite a bit but increases to demand and the adjustment to crude offset the change. The Gulf Coast accounted for the bulk of the drop in refinery runs despite PADD 3 crude holdings also falling below their 5-year range for June, well below the previous two years. Regardless of the 2.5 million barrel drop, overall run rates remain above their 5-year range with every PADD above average and the total utilization rate holding comfortably above 90%.

Outside of PADD 4 diesel jumping to the top of its seasonal 5-year range, the net increases for gas and diesel were minimal despite another week of higher demand for both products. Diesel stocks have spent the past 6 weeks charting a new 5-year floor while gas inventories are hanging about 4 million barrels below the seasonal average.

Ethanol production and inventories have continued to run above their 5-year ranges the past few weeks, even with exports jumping and remaining elevated over the same period.