Crude Climbs For A Fifth Day While Global Fuel Supplies Remain Under Pressure

It’s a mixed bag for energy markets this morning with crude oil prices moving higher for a 5th straight day, RBOB futures are ticking lower for a 4th straight session, while ULSD futures are seeing nickel losses after another big 20+ cent rally on Tuesday.

The UKMTO reported 2 more tankers were struck by projectiles while transiting Hormuz Tuesday, adding to 4 strikes on Monday and 2 on Sunday as Iran apparently is making the most of its window where the U.S. has promised it won’t attack them prior to the elections.

Meanwhile, Houthi drones and missiles apparently targeted Saudi Aramco facilities again Tuesday, claiming to hit the 130mb/day Riyadh refinery in addition to another attack on the Riyadh airport.

So much for the ceasefire? There are reports that Ukraine’s drones struck a Russian fuel depot near the Novoshakhtisnk refinery overnight, in retaliation for Russia attacking a power plant near Kyiv. It is still unclear however whether this is a new attack, or if a new tank caught fire after the facility was attacked last week.

The IEA’s monthly oil market report highlighted how the Iran was is manifesting itself through restricted fuel supply availability and soaring rices, both of which are weighing heavily on the global economic outlook, and pushing fuel demand sharply lower for the year.

Supply losses are still outpacing that weaker demand however, particularly on diesel, as exports of refined products and LNG from the Middle East are still less than half of their pre-war levels and Asian refiners saw their margins erased by high crude prices and surging freight costs.

The report summarizes the situation like this:

“…the gasoil market balance will remain tight well into 2027 and is dependent on a recovery of product supply from the Middle East. Failing this, further demand reductions and the heavy economic costs these will entail may be needed to balance markets.”

The report also published numerous charts highlighting why diesel supplies are expected to remain tight as increased exports from the U.S., China and India can’t keep pace with the lost exports from Russia and the Middle East.

The Financial Times published a note this morning highlighting how soaring crude costs and freight rates has eroded European refining margins, in addition to those in Asia. That collapse in crack spreads may be enough to convince some plants to go heavy on maintenance rather than operate below break-even, opposite of what most facilities in the U.S. are doing, and that phenomenon will only make the tight product inventories worse heading into the winter month..

The latest in the smoke and mirrors campaign to convince voters the government is going to help lower fuel prices: The U.S. Vice President announced a program under the war powers act to expand Delek’s 70mb/day Tyler TX refinery. While that makes for a good headline, the details weren’t provided and any expansion efforts would likely take years to bring online. There’s also an inconvenient detail that this facility currently qualifies for a Small Refinery Exemption (SRE) under the RFS, which is worth hundreds of millions of dollars, so any expansion will likely be very limited in scope to avoid closing that loophole.

Meanwhile, the EPA announced 2 proposals to reallocate the Small Refinery Exempted volumes from 2025 that were announced in August. In case you were still wondering how politically motivated this program is, the announcement included quotes from 5 different Iowa lawmakers supporting the plan to reallocate 100% of the waived volumes. The catch is the first proposal splits the 2025 SRE volumes equally between the 2026 and 2027 compliance year, while the second moves all the volume to 2027. 2026 D6 RIN values dropped a dime in the afternoon following the announcement based on the chance refiners may get a 1 year pass on that extra burden.

The Dallas FED published a report highlighting the change in refining capacity globally over the past 15 years, and highlights how the dual war disruptions this year are set to have long term effects for consumers.

P66 reported an upset at its 265mb/day Sweeny TX refinery that lasted just under 5 hours on Monday night. The process upset caused flaring at a Cogen and Coker unit but the filing suggests operations were stabilized and returned to normal.

P66 also reported a spill at its 345mb/day Wood River IL refinery Tuesday, caused by a “Piping leak at a barge float.” The very confusing filing with the IEMA said 5 barrels were released into the river, but no injuries occurred, but then ended the note by saying “This is a drill!” so it’s unclear whether or not there was an upset at the plant, or just in their reporting.

There are also some headlines floating around that say the facility is dealing with an upset in an FCC unit, but that was not confirmed in the filing, or by company officials. The refinery’s facebook page did however confirm their 4th annual United Way BBQ cook-off.