Ceasefire Announced in Middle East, Energy Markets Crumbling

Si vis pacem, para bellum.

Energy markets are crumbling after Iran’s response Monday to U.S. attacks over the weekend seemed to be a clear signal that they were willing to step back from fighting which sparked a heavy wave of selling in the afternoon. Sure enough, a few hours later a ceasefire was announced and the selling continued overnight.

Even though both sides are already claiming violations of the ceasefire agreement, it’s clear that Iran isn’t currently trying to disrupt the world’s most important energy supply bottleneck and that’s enough to remove almost all of the fear premium that was priced in over the past 2 weeks.

ULSD prices lead the move higher and have led the slide lower, down an eye popping 52 cents/gallon in less than 1.5 days following the brief price spike Sunday night. Brent crude is down 17% since it’s Sunday high while RBOB is lagging behind with “only” a 29 cent/gallon (12%) decline over that span. See table below.

Largely lost in the war headlines were a pair of court rulings that could have long term impacts on environmental programs. The first from the Supreme Court that said fuel producers have standing to sue the EPA over its waivers to California, opening the door to legal challenges of the state’s excessive policies that go beyond federal authority limits.

Meanwhile a DC circuit court said the EPA didn’t follow the law when it issued its 2023-2025 renewable fuel mandated volumes and needs to reconsider the negative environmental impact growing corn and soybeans for fuel really has. Other challenges to the statute by fuel producers and refiners were rejected in that ruling. RINs initially sold off Monday following this news, but recovered most of their early losses in the afternoon as it appears the order doesn’t require a change in target volumes, just more data to support it.

Excerpt from the Courthouse news article:

In one example, a study the EPA used had determined corn-based ethanol would emit 38 grams of carbon dioxide per megajoule of energy generated, while similar studies set the figure between 84 and 98 grams. The panel found several such instances that, when the EPA reviewed corn ethanol and soybean oil-based biodiesel emissions, it turned to lower-end estimates from a 2010 study.

“EPA has failed to justify its climate conclusions regarding the [greenhouse gas] emission reductions attributable to the Set Rule,” the panel wrote. “EPA’s unexplained decision to generally rely on those published estimates for every other fuel category and to disregard them for crop-based renewable fuels in favor of ranges derived from its dated 2010 study was arbitrary and capricious.

The NHC continues to track a small storm system in the middle of the Atlantic that doesn’t pose a threat to land, but still could get a name. Meanwhile, flash flood warnings have been issued for Beaumont TX and the surrounding region which is home to several of he country’s largest refineries although no upsets have been reported thus far.

Flint Hills reported a potential leak from a cooling tower at its Corpus Christi TX refinery complex Monday, although it’s unclear if any operating units were forced to slow due to the event.

Meanwhile, Marathon is still assessing damage done by a fire at its refinery in Texas City that it refers to as Galveston Bay in order to try and diminish the memories of that plants beleaguered history.