Concern For Straight Of Hormuz Becoming Tactical Retaliation Point For Iran

“Buy the rumor, sell the news” seems a fitting adage for energy markets this morning as futures have turned lower following a short-lived spike overnight as the world reacts to the U.S. attacks on Iran over the weekend.

The big what if for energy markets revolves around the Strait of Hormuz and what Iran is capable and willing to try and do to disrupt shipping through the world’s most strategic waterway. While the strait is certainly vulnerable, given the limited capabilities of Iran’s armed forces the most recent conflict, and their unsuccessful attempts to disrupt or block shipping in the past, there’s certainly a chance that this event remains one where prices move due to headlines more than they do due to an actual reduction in supply.

Iran’s parliament was reported to vote for a closure of the strait over the weekend, although other reports noted they may not have any authority over the shipping lanes to even attempt such a move. As of this morning, tanker traffic continues to move in both directions, although electronic jamming that’s been going on since Israel started its air campaign is complicated navigation, and some ships do appear to be avoiding the area.

The CFTC’s weekly commitments of traders report will be released later today, delayed due to the Juneteenth holiday last week. Data from ICE shows that large speculators were in short covering mode after Israel’s air campaign began with more than 1/3 of the outstanding short positions in Brent and Gasoil contracts liquidated during the week.

The EPA’s latest update on RIN generation released Friday showed another decline in production for four out of 5 categories of RIN. Ethanol RINs (D6) saw a 5% increase for the month, but those gains were more than offset by another large drop in biomass based RINs (D4). RIN Values spiked over the previous week after the EPA proposed healthy increases to the mandated renewable volumes for 2026 and 2027, and made changes to heavily favor domestic fuel and feedstock producers, ignoring a recent report that suggests fuels made from U.S. corn and soybeans are actually worse for the environment than traditional gasoline and diesel. Keep in mind that when the Renewable fuel standard was put in place 20 years ago, it had nothing to do with environmental concerns, and everything to do with domestic energy security, which seems to be the continued focus for the current administration.

Baker Hughes reported another drop in drilling activity last week with the oil rig count decreasing by 1, and the natural gas rig count declining by 2. The total U.S. and Permian oil rig counts are both at their lowest count since late 2021.

The National Hurricane Center is giving 70% odds of development for a system of thunderstorms moving east of Bermuda this morning, but even if that system gets a name it will not be a threat to land due to its location.