Diesel Strength Defies Crude Weakness As Conflict Spreads

It’s a mixed bag for energy markets to start Tuesday’s session, with ULSD futures pushing higher, crude futures sliding the red once again and RBOB holding near break-even as reports of diplomatic progress conflict with reports of spreading violence. Oman has reportedly presented a deal to Iran that would allow ships to pass through Hormuz with only a “voluntary” fee. So far it’s unclear whether this latest offer will go anywhere, while actual shipping activity through the strait remains at less than 10% of what it usually would be.

While the US and Iran are still holding off on direct strikes from now, the fighting in the region has absolutely not stopped with fresh drone attacks by Iranian proxies on Saudi Arabia, Jordan, Iraq and Israel reported Monday. The attacks against Saudi Arabia targeted refineries and oil export facilities, but so far there is no clear indication on whether or not any of the targets were actually struck.

Ukraine made its first strike on Iranian ships delivering supplies to Russian via the Caspian sea as it continues to expand its reach while bringing the two wars closer together. The US and Ukrainian Presidents are set to meet today in Washington, with Ukraine no doubt urging the US to consider Russia and Iran as part of the same team in a broader conflict. Meanwhile, there were reports that the Ukrainian strike on the 160mb/day Tyumen refinery in Siberia over the weekend forced the facility completely offline, adding to the fuel shortages spreading across the country.

Citgo was forced to shut down some units at its 183mb/day Lemont IL refinery after a power loss caused by the storm Monday afternoon. A filing with the Illinois Hazmat department suggests multiple pieces of equipment were shut down to prevent the release of sulfur dioxide and hydrogen sulfide caused by the power disruption. It’s not yet clear yet which unit(s) at the refinery are offline and the upset happened after trading had wrapped up for the day Monday so we’re still waiting to see whether or not the notoriously volatile basis values in Chicago-land will react to the news. Chicago basis values had already been strengthening Monday after reports of a power outage at the 345mb/day P66 Wood River refinery over the weekend.

The powerful storms that swept the area appear to have moved just north and east of Exxon’s 275mb/day Joliet refinery, while BP’s 430mb/day Whiting IN facility was included in a tornado warning while the storm passed, but so far there are no reports of any damage to the facility.

Those severe storms are moving eastward, with large portions of the mid-Atlantic states set to feel some impacts today which is likely to have more negative impact on demand than supply given the lack of refineries in the region, although the Philadelphia-area refineries will have to dodge a couple storms tonight.

The EIA Monday took a look at US vehicle sales in the US over the first half of the year, noting continued growth in the hybrid market, while EV sales continue to struggle without the federal tax credit, in spite of higher fuel prices caused by the war. Battery electric vehicles made up just 6% of new vehicle sales in the 2nd quarter.