Energy Markets Juggle Supply Risks, Inflation Pressures, And Geopolitical Conflict

Refined products are seeing a wave of selling to start Thursday’s session, while WTI is clinging to small gains which would mark a 6th straight day of increases if they’re able to hold on through the settlement. Despite the day’s 14 cent pullback, ULSD futures are still up more than 6 cents for the week, while RBOB gasoline prices are down 8 cents for the day and 13 for the week so far.

Reports that Chinese refiners are stepping up purchases of Middle Eastern crude oil is getting some credit for the pullback, with the argument that the country will soon be exporting more refined products as their “golden week” restrictions expire, but that news has been out for nearly a week so it’s hard to really believe that’s the main reason for the pullback today.

“We’re Done”. Ukraine is retaliating against Russian attacks on its power grid with more refinery strikes overnight, as frustration over the sudden shifts in U.S. policy over the past week continue to mount. Ukraine’s drones reportedly struck the 343mb/day Ryazan refinery in a clear rebuke of the fake ceasefire.

The UKMTO reported 2 more ships were attacked while transiting Hormuz Wednesday, bringing the total to 13 ships attacked in the past week while the U.S. military has continued to hold off on retaliatory strikes ahead of the mid-term elections. New outlets report that 2 other cargo ships have sunk after being struck earlier in the week while transiting the strait.

The DOE’s weekly status report was delayed by the holiday Monday and is due out at noon eastern.

The API’s weekly estimates showed a huge draw in crude oil stocks of more than 11 million barrels last week. Refined product inventories were mixed with gasoline stocks increasing by 1.1 million barrels, while diesel stocks dropped by 1.5 million barrels.

West Coast diesel basis values are surging once again, with LA Spot differentials trading north of a 70 cent premium to futures Wednesday. Regional rack values haven’t been buying the buying in spot markets however with the rack spreads in LA, SF and Phoenix all dropping sharply this week.

Runaway inflation continues to in the U.S. with energy commodities leading the surge after years of acting as a governor on rising prices. Yesterday’s CPI report showed 3.7% total inflation year on year, with gasoline prices up 35% and fuel oil up 74% from a year ago. The inflation rate less food and energy was 2.6%, which is still higher than the FED’s 2% target, as the trickle down effect of higher diesel prices a key contributor as transportation costs for just about everything have spiked.

Today’s interesting read: A Reuters report on Iran’s strategic targeting of Gulf infrastructure since the war began.