Energy Markets React To Escalating Middle East Risks And US Refining Issues

Crude oil futures are leading the way higher this morning with both the American and European benchmarks adding over $4 per barrel (~9.5 cent per gallon equivalent), and pushing the former over the $100 mark for the first time in a couple weeks.

Iran has proposed a three-stage peace plan to regional mediators, offering to end attacks in the Strait of Hormuz in exchange for a permanent ceasefire and the lifting of the U.S. naval blockade. The main friction point with the proposal is that it leaves Iran with control of the waterway, which could be used as an on-hand negotiating lever for any further disagreements countries may have with Tehran and its nuclear ambitions.

Around 11pm last night Shell announced it needed to take down one of the units at its Norco refinery to make repairs. About four hours later, emergency responders were on-site and working to extinguish a fire at the 250mbd plant. While the extent of the damage is currently unknown, all of Shell’s personnel are uninjured and accounted for and there has not been public orders made to shelter-in-place.

RINs continued their march higher yesterday, with D6 (ethanol) and D4 (biomass-based diesel) setting fresh 3-year highs. A case for lower values has yet to emerge after the EPA published their final ruling on the Renewable Fuel Standard for 2026 and 2027 late last month.

The United Arab Emirates has just announced it will be leaving OPEC at the beginning of next month, ending the UAE’s 59-year membership in 3-days time. Short-term impacts on global energy markets are expected to be minimal, especially with the Strait of Hormuz closure, but OPEC’s response, both as a cartel and individual member nations, will be interesting to watch. Under normal conditions, the UAE is the third/fourth largest oil producer in the cartel at ~3.5 million barrels per day, which is more than the last four countries to leave OPEC combined. (Indonesia-2016, Qatar-2019, Ecuador-2020, Angola-2024).