Energy Market Resurgence Amid Summer Storms and Price Spikes

Energy futures are ticking modestly higher to cap off a month in which prices started out weak but ended strong, offering hope to producers and refiners who were otherwise staring at a summer of discontent. Diesel prices started the month by dropping to their lowest level in more than a year but have rallied more than 30 cents since June 4th. Gasoline prices touched their lowest level since February (which was a much cheaper winter-spec product) before rallying 25 cents in the past 3.5 weeks. Weekly charts now suggest both RBOB and ULSD have a chance to make a run at the $2.80 mark in July, if they can break through near term resistance around $2.60.

Today is expiration day for July RBOB and ULSD futures. Most cash markets have already rolled to trading vs August, but for the NYH and Group 3 markets that will shift today, be sure you’re looking at the RBQ and HOQ codes for price direction today.

Next week spot markets will not be assessed both Thursday and Friday, but futures will trade in an abbreviated session Thursday (no settlements) and a full day on Friday, so there’s an increased chance that rack prices could move over the extended quasi-4-day weekend.

BP announced a hiring freeze and a pause in new large renewables investments, just a week after announcing a new investment in 2nd generation ethanol in Brazil, which has the potential to achieve much lower carbon intensity than US made ethanol. This is just another harsh reminder that renewables are only really sustainable if they can make a return.

The EIA this morning highlighted the shifting patterns in US commercial electricity demand as rapid growth in data centers have created huge new consumption in several states, while others suffering through a so-called brain drain migration pattern see their volumes decline. While the US has more natural gas than it can consume domestically, which helped push prices to record lows earlier this year, getting that gas to where it needs to be, exactly when it needs to be there to support the rapid changes in electricity demand is expected to be a challenge for years to come.

They said it was going to be a busy hurricane season, and so far they’re not wrong as the NHC is tracking 3 different potential storm systems, and we haven’t even hit July. One of the three to keep an eye on is known as 95L at the moment but is given 90% odds of being named (Beryl) in the next few days as it moves towards the Caribbean.

The European model which has had a better track record for accuracy suggests there’s at least a good chance this storm keeps heading west over land in Mexico late next week, which means it could end up being a non-issue for the US. That said both the Euro and GEFS models are showing at least some potential that this system takes aim at the Houston area, which of course is the heart of the industry and has the most potential for wide-spread disruption if various production, shipping, refining or pipeline activities are forced to close. It looks like next Wednesday is about when this system will either make its turn north towards the Gulf and make it a big deal or continue West and let the industry breathe a sigh of relief.

Meanwhile the first storm of the 3 to be tracked (94L) looks like a non-event even though it’s expected to be in the SW Gulf of Mexico next week as it will move west over Mexico. For a country who is seeing widespread issues due to heatwaves and a lack of water, this could actually be good news depending of course on where and how quickly that rain hits.

The 3rd storm is given 20% odds of forming in soon-to-be Beryl’s wake, and it’s too soon to say where it might be headed if it does form.

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