Diesel's Breakout Signals Renewed Pressure Across Energy Markets

Diesel futures are trying to lead the energy complex in another push higher Tuesday, after staging another huge mid-day reversal Monday, bouncing more than 23 cents/gallon off the morning lows. RBOB gasoline futures were following diesel higher most of the night, but have since reversed course and are seeing small losses, while crude oil futures are seeing gains of around $1/barrel with Brent crude hitting a fresh 5 month high overnight.

ULSD futures broke above the $5 mark for the first time in October, and have now earned back the 35 cent backwardation gap left from the expiring October futures contract. The forward curve is still steep, with another 23 cents between the November and December contracts, and $1.20/gallon over the first 12 months of active contracts. If the October contract can settle above the $5 mark, there’s another 30 cents of upside on the charts, and it wouldn’t be a shock to see them make a run at the September high of $5.42 prior to expiration on the 30th.

The UKMTO reported an incident off the coast of Oman overnight, involving a tanker and military forces, but did not specify which military forces and did not refer to this as an “attack”. Meanwhile, Iran’s IRGC is claiming two more ships have struck mines while trying to use an “illegal” path south of Hormuz, which would fit the area of the UKMTO report, but it could also be a ship disabled by U.S. forces while trying to break its blockade of Iran’s ports.

Yesterday there were reports that missiles hit an Iranian naval base, but the U.S. military claims is wasn’t their strike as they continue to not retaliate for the increased attacks on ships as promised ahead of the election. This raises the possibility that another gulf state may have attacked Iran (again) in retaliation for the ship attacks, or there’s always the chance the story is fake news.

The Houthis claimed strikes on multiple Saudi oil installations Monday, along with more airport attacks. While the Saudis aren’t confirming (or denying) the strikes, they did postpone their major investor conference – that many big name executives had already backed out of due to the spreading violence – which is all the confirmation needed that their latest war is not under control.

Ukraine attacked a Druzhba pipeline hub in Russia overnight. The facility handles more than 2.2 million barrels/day of crude and refined products through its pumping stations and tank farms, so is definitely a vital hub, but it’s unclear what damage was done in the strikes. Ukraine’s drones have not targeted a Russian refinery since last Thursday, which may be a way to try and keep the door cracked for negotiations with the U.S., with reports that patriot missiles are being withheld from Ukraine due to their refusal to stop targeting refineries which some politicians apparently believe is hurting their party’s election prospects.

More smoke and mirrors ahead? The U.S. Secretary of State is visiting the world’s largest refinery in India this week, whose owner is an announced investor in the “new refinery” that was used as political propaganda in the early days of the war. 7 months later, that “new refinery” is still in the permitting and fundraising phase, but that won’t stand in the way of a “new deal” announcement to try and lower prices.

RIN values are down 30 cents int eh past 4 sessions, reaching a 6 month low after a proposal to the EPA to broaden the eligibility of marine fuels to qualify for the RFS. If passed, this would mean renewable natural gas, and some other biofuels, that haven’t previously generated a RIN now would be eligible and thereby increase RIN supply at a time when domestic producers can’t keep pace with the EPA’s mandated targets. 2026 D6 RINs had been trading for $2.02/RIN prior to that letter being issued last Thursday, and hit a low of $1.70 yesterday before a bounce to end the day around $1.75.

Valero reported an emissions event at its 225mb/day Corpus Christi West plant (their combined east/west facilities in Corpus Christi process around 330mb/day) Monday when a railcar that was unloading had a gasket failure. The spilled product was contained and vacuumed up, and it doesn’t appear this had any impact on refining operations.