Betting On Diplomacy While Supply Threats Persist

Energy markets are seeing another wave of heavy selling Tuesday, after the U.S. Treasury Secretary said a deal to re-open the Stait of Hormuz “could happen” later today or tomorrow.

It’s also true to say I could win the lottery today or tomorrow, although I suppose I’d need to buy a ticket to do so.

It remains unclear whether or not the U.S. and Iran are even negotiating directly with each other this week, but Qatari officials have confirmed that a draft proposal is “being circulated” between gulf nations that could allow vessels to begin transiting again without dodging missiles.

Speaking of dodging: during the Treasury Secretary’s interview with CNBC this morning in which this latest lofty claim was leveled, he did not address a question about whether or not the deal would allow Iran to charge a toll for passage through the strait, which obviously would create consternation with U.S. allies in and around the Persian Gulf.

Meanwhile, despite the 10 percent drop in futures to start the week based on hopes imminent peace, another vessel was struck as it tried to transit the strait near Oman overnight, and the Houthi’s launched another attack against Saudi Arabia, which reportedly targeted an airport.

Ukraine is continuing its record-smashing pace of attacks on Russian refineries, hitting another plant overnight, which marks 5 confirmed refinery strikes in the first 4 days of August, adding to the record 20 strikes they made in July. Russia has extended its export bans through January as a result of the refinery attacks, while its crude oil exports continue despite ongoing interventions of shadow fleet tankers.

RIN values bounced around 5-6 cents for both D4 and D6 values Monday after trading down to their lowest levels in over 2 months following the latest updates on small refinery exemptions from the EPA. Of the 6 outstanding petitions for a waiver, 1 plant was given a full waiver, 2 were given 50% waivers and 3 were declared ineligible for processing over the 75mb/day threshold for the exemption. HF Sinclair had every possible result for its refineries, with the Tulsa plant getting a full waiver, its two Wyoming plants (Casper & Parco) receiving partial waivers, while its Salt Lake City (Woods Cross) plant was denied, and its Artesia NM refinery was declared ineligible.

A hotly debated detail in a bill moving through congress is whether to change the definition to small refiner, rather than small refinery, in which case companies like HF Sinclair and Delek who operate multiple small facilities would not be eligible for any exemptions. The version of the bill that would also grant year-round approval for E15 despite its smog production in the summer time changes the definition and would remove most eligibility, while a new version in the Senate would standardize the exemptions without changing the definition.

Citgo reported a brief flaring incident at its 180mb/day Lemont IL (Chicago) refinery Monday, a week after that facility was forced to shut multiple units due to severe storms in the area. The latest blip lasted only 12 minutes and doesn’t seem to have impacted production, and is likely a part of restart efforts.

Exxon reported flaring at its 630mb/day Beaumont TX refinery, in a coldbox unit that separates light ends by cooling them to extreme sub-zero temperatures, which seems impossible in August. That upset lasted just under 6 hours, but does not appear to have impacted other units at the plant.

This refinery had the last major expansion by any U.S. facility, which came online in early 2023 adding roughly 250mb/day of capacity at a time when the U.S. President was criticizing refiners for not doing enough to lower gasoline prices following the record profits they’d earned during the Ukraine war. This week, the current President is also lobbing similar complaints at Exxon and others for making “too much money”.

Speaking of which, Marathon was the latest refiner to report a huge quarter with both its traditional and renewable segments having huge year on year gains thanks to the fallout from the war in Iran and the war on our sanity known as the Renewable Fuel Standard. In addition to the big earnings in Q2, Marathon also completed projects to expand its gasoline offerings at its El Paso refinery and its Jet Fuel production capacity at its Robinson IL plant, while an expansion

Texas has joined states putting a moratorium on new data center builds until they’ve had more time to review applications and grid reliability. This comes less than 2 weeks after ERCOT reached a record level of electricity demand during the late July heat wave, according to a note published Monday by the EIA.