Diesel Prices Slip As Peace Talks Spark Optimism In Energy Markets

Diesel prices are slipping this morning as news that the White House and Kyiv are making headway in their negotiations toward a peace deal have traders hopeful that an end to the Russia-Ukraine war may be in sight. Prompt month HO futures are down nearly 2.3% to start the day while RBOB and WTI contracts are hovering around breakeven.

An end to the war would almost certainly involve a relaxation of sanctions on Russian energy exports, which pushed diesel prices north of $5 per gallon back in 2022 as Europe scrambled to find a replacement for their natural gas demand. The latest round of sanctions imposed by the U.S., this time targeting Russo oil exports to India, have caused a U.S. distillate prices to run-up to $2.70 per gallon last week, and pushed the prompt month HO spread to 10-month highs, implying a short-term supply crunch. Diesel prices have since cooled, dropping nearly 30 cents from last week’s highs.

The deal isn’t done though, and Ukraine hasn’t stopped pressuring Moscow’s energy infrastructure in the meantime: explosions were reported this morning at Lukoil’s refinery in the Novgorod region, according to Energy News Today. This is the second time this month the plant has come under attack, likely resulting in the cessation of the plant’s potential 359 thousand barrels per day of production.

Baker Hughes reported an increase of 2 active oil production rigs last week, bringing the total to 419, 254 of which are operating in the Permian Basin. Total oil production dropped slightly last week, as reported by the Department of Energy last week, but the U.S. is still producing nearly 13.9 million barrels of oil per day, more than any country has, in the history of ever.

The CFTC still hasn’t gotten around to updating their Commitments of Traders information, even though the government opened back up two weeks ago, but the Intercontinental Exchange is still publishing their position holdings by trading class. ICE showed a net increase in long bets held by Money Managers last week for both Brent and Low Sulfur Gasoil (Europe’s distillate contract), suggesting the ‘smart money’ isn’t quite sure we are out of the woods with Russian energy disruptions yet.