Energy Markets Caught Between Diplomacy, Disruption, And Declining Inventories

Did you get the memo?

Energy markets are seeing a wave of heavy selling Wednesday as the potential for peace between the U.S. & Iran appears closer than ever, but doubts remain keeping markets on edge.

Fuel prices had been holding modest gains through the overnight session but saw heavy selling in the early morning hours after an Axios report that said the U.S. & Iran were making progress on a 1 page memo to end the war. A couple hours after that report oil prices were down $13/barrel, ULSD was down 48 cents/gallon and RBOB futures were down 33 cents.

Those losses were cut in half between 6am and 7:30am central after the U.S. President said Iran will be bombed “at a much higher level” if they don’t agree to the deal in a post. So there we are. For now, it appears that the U.S. efforts to re-open part of the strait have been put on hold, but the U.S. blockade of Iranian ports will continue.

The API reported more drawdowns in inventories as the U.S. becomes the backup supplier to much of the world, pulling down domestic stockpiles quickly. The estimate showed a drop of 8 million barrels of crude oil, 6.1 million barrels of gasoline and 4.6 million barrels of diesel. The DOE’s weekly update is due out at its normal time this morning and with exports for crude & refined products holding near record highs, expect those drawdowns to continue until demand starts to suffer.

Exxon reported an oil leak that caused 17 hours of unplanned emissions at its 630mb/day Beaumont TX refinery Tuesday. The report to the TCEQ said the leak on a pipe in the oil movements control center of the facility but did not mention any processing units suggesting the facility was still able to stay online throughout.

Valero also reported an oil spill at its 370mb/day Corpus Christi refinery caused be a failed roof drain in its tank farm. Here too, the TCEQ report suggests that the facilities operating units weren’t impacted by this event.

Marathon reported that it would start 3 days of maintenance at the Carson section of its 365mb/day Los Angeles refinery this morning, following an unplanned flaring event at the facility Monday night. PBF meanwhile reported that it would begin 9 days of work tomorrow at its 160mb/day Torrance CA refinery. LA spot markets seemed unfazed by those events with only minor movements in CARBOB and diesel differentials on the day.

The San Francisco spot diesel market continues to confound this week with an actual trade done for CARB #2 Tuesday at an 80 cent premium to futures making it the most expensive ULSD in the country, while Renewable Diesel traded in the same market on the same day for a 77 cent discount to CARB diesel plus fees.