Energy Markets On Edge As US–Iran Dynamics Shift Again

Energy markets are surging again to end February trading after reports that U.S. officials encouraged non-essential embassy employees to leave Israel “sooner rather than later” which is apparently being taken as a sign of a looming attack on Iran. This time yesterday the same contracts were seeing sharp losses after reports of progress in in-direct negotiations between the U.S. and Iran, but prices quickly recovered after those talks ended with no real signs of progress, although there are plans to continue talks next week, provided that another war doesn’t break out over the weekend of course.

WTI has surged to a fresh 7 month high approaching $68/barrel, while the expiring March ULSD contract has rallied nearly 9 cents back above the $2.70 mark, and the soon to be prompt April RBOB contract is nearing a 2.5 year high north of $2.30.

Today is expiration day for March ULSD and RBOB futures, and as is often the case, the roll between March and April marks a major shift in values.

For a good example of how illiquid, and thus erratic, trading can be on expiration day, see the quote sheet below that shows the March ULSD contract going more than 3 hours without a single trade this morning, which left the bid 3 cents higher than the last trade as the market moved higher. That nuance often goes overlooked with most just looking at the “Last” traded price for the market move. If you haven’t already switched to looking at April futures for your local market, make sure you’re doing so today.

RBOB gasoline futures are also making a big move when they transition from March to April, as the winter contract expires and the summer contract – which is trading some 23 cents higher – takes the pole position. The April contract is already trading at its highest level since July 2024 this morning as it makes a run towards the $2.30 level. On the continuous chart, that $2.30 range looks like important resistance as we saw prices trade up to that level 4 times last summer and each time there was a sharp selloff within a few days. For the followers of the spring gasoline rally, it’s worth noting that the April gasoline contract has already added 20% from the lows set in mid-December.

Volatility in the energy space, measured by the OVX index has surged to its highest levels since the last time there was a shooting war in Iran. Volatility in equity markets, measured by the VIX, seems tame in comparison even though futures are pointing towards healthy losses to start the day. The correlation between equity and energy markets remains essentially non-existent as is has been for most of the past year.

OPEC & Friends are holding their monthly market condition meeting on Sunday, with expectations that the cartel may resume increasing its output targets as prices have recovered.

PBF reported 2 unplanned flaring events at its 165mb/day Torrance CA refinery overnight, both listing a mechanical/electrical malfunction in the regulatory filing. Energy News Today had reported that the company was preparing to start up an alkylation unit after a month of planned maintenance wrapped up this week, so it’s likely those upsets are just typical challenges that come with unit restarts and not a sign that production will be slowed. Meanwhile, PBF is still attempting to bring its 157mb/day Martinez CA refinery in the SF Bay area back online following a major fire 13 months ago, and that facility was forced to pay a $10 million fine for a long stretch of air quality violations in an agreement announced last week.

Valero reported an upset at its Houston refinery following a power interruption that triggered nearly 18 hours of unplanned flaring. The report did not specify if any specific units were damaged by the unplanned loss of power, but given the ample stockpiles of gasoline and diesel in the Gulf Coast, the impact to basis differentials should be minimal.