Energy Markets End A Wild Week With More Questions Than Answers

It’s a mixed start for energy markets with gasoline futures down a nickel, distillates up 3-4 cents, while oil prices are holding near breakeven, which seems to be a fitting end to another wild and confusing week. We’ve gone an entire day without a new military strike between the U.S. and Iran, and negotiations are reportedly ongoing, but this week’s flareup has cast plenty of doubt on the entire process following so much optimism that the world’s oil markets were returning to normal.

Some reports say that crossings through the strait are at a “Stand still” while KPLER, who seems to have more credibility on this opaque topic than most news outlets, showed that 22 ships still made the transit yesterday, which is about half of the activity that happened in the days prior to the latest flare up.

As has been the case for the past several months, there are many more questions than answers heading into the weekend, and thanks to a last minute move by regulators, we’ll get to enjoy a trading-free weekend, perhaps for one of the last times. The CFTC announced it was blocking the CME from starting a crude oil contract that would trade 24/7 Wednesday. The CFTC and CME Group have been feuding over several topics recently ranging from Crypto to prediction markets, and now the largest commodity market of them all. The move does appear to be temporary as the CFTC requires vetting of the new contract, but ultimately, instead of trading 23 hours a day during the week, the oil market now may have to give up their weekends as well.

The IEA’s monthly oil market report for July highlighted a recovery in both global supply and demand during the June ceasefire, most notably a 4.1 million barrel/day increase in supply as ships started moving again through the strait. The report also noted that there’s still about 9.4 million barrels/day of supply still missing, and the recent flare up is delaying those efforts. The report also noted that the recovery in refinery runs has lagged behind the increase in oil shipments, with product and LPG exports are lagging behind with loadings from key Gulf refineries not yet returning, which exacerbates the impact of Russia’s export ban, which helps explain the big increase in crack spreads over the past several weeks that has refiners cheering and the U.S. President seething.

The EIA’s Short Term Energy outlook was lost in the resumption of the war earlier this week, and since its focus was on how the markets were recovering now that the Strait was reopened, you can continue to ignore it.

We know there was a huge short position held by money managers (the large speculative category of traders) in Brent crude oil prices over the past couple of weeks, and we’ll get our first glimpse at how many were squeezed out by the price rally, but its worth a reminder that the data published this afternoon by the CFTC comes as of Tuesday’s close, so we won’t see the impact of Wednesday’s huge “war on” rally until next week.

June was a record setting month for Ukraine’s drone campaign against Russian refineries with at least 13 documented hits on facilities. Already through 9 days of July there have been 9 documented refinery strikes, proving that Ukraine’s capabilities are expanding as Russia’s defensive capabilities are waning. In addition to the refinery strikes, multiple oil and fuel terminals have been struck and just this week an estimated 35 tankers supplying Crimea have been hit, adding to the squeeze of the coveted peninsula.