Brent Tops $100 As US Iran Tanker Strikes Escalate, While Gasoline Backwardation Is Deflating

Energy markets are rallying for a 2nd day as the U.S. and Iran play a second round of “You shoot my boats, I’ll shoot yours”. Brent crude is trading north of $100/barrel for the first time since July; ULSD futures are up another 15 cents/gallon, but the October RBOB contract is resisting the pull higher as some of its steep backwardation leaks out as the U.S. driving season moves into the rear-view.

U.S. military forces struck 5 more Iranian crude oil tankers Monday night, in retaliation for a fresh round of IRGC attacks on U.S. Navy vessels. U.S. CENTCOM says that all of Iran’s attacks have been defeated, and no U.S. ships have been struck in the latest two waves of attacks, while a total of 10 Iranian tankers have been destroyed over the past week.

In addition, the war between the Houthis and Saudi Arabia continues to ramp up, along with fighting between Israel and Hezbollah, all of which suggests we’re probably closer to more war than we are to more peace.

Wait, our price went down? Despite the rally in RBOB futures Monday, NY Harbor RBOB prices dropped nearly a dime as the giant backwardation balloon for the last-standing summer gasoline grades started to deflate, sending prompt differentials from a 45 cent premium to October futures down to “just” 29 cents. Barrels for delivery September 10-15 are already offered at a 25 cent premium, continuing the downward trend, with buyers surely resisting any need to buy a 7.4lb RVP product when the market will be fully converted (for the states that ignored the EPA’s waivers) to winter supply in a week. See charts below for more detail on time and basis spreads.

The weekly inventory reports are delayed a day due to the Labor Day holiday, with the API due out later this afternoon, and the DOE’s weekly status report due out at noon Eastern tomorrow. Later tomorrow we’ll get a look at the EIA’s monthly Short Term Energy Outlook, which will no doubt continue to revise its price forecasts higher as the wars drag on and spread.

Way to give it (almost) 110%. A Reuters note this week highlights how India’s refiners have been exceeding nameplate capacity, running between 105%-108% over the past six months, taking advantage of record margins for distillate output and discounted crude oil imports from Russia. Just like in the U.S. (or anywhere else, for that matter), these plants will have to slow down for maintenance at some point, but for now, the extra output is golden.

Exxon reported an upset in an FCC unit at its 588mb/day Baytown, TX refinery Monday morning, caused by a loss of airflow to a boiler. The TCEQ filing noted the event lasted just under three hours, with only that unit apparently affected. The upset in an FCC unit that primarily produces gasoline components is somewhat ironic at this refinery, which is investing billions in a conversion project to produce more diesel and plastic components, and less gasoline, as the oil major bets on long-term demand destruction for mogas.