Energy Markets Slide To 2-Month Lows As Fragile Peace Shakes Confidence

Energy markets are trading at a 2 month low this morning, after the U.S. President declared both War and Peace on Thursday, with early morning gains turning into big losses mid-day after the promised attacks were called off and a new peace deal was announced.

There’s just 1 little detail standing in the way of peace at this point, Iran has not yet agreed to it. There are also reports that Iran launched more drone attacks on commercial ships transiting the Strait of Hormuz after the breakthrough in a peace agreement was announced Thursday night. U.S. forces were said to have intercepted those drones without damage to any vessels.

Whether or not you believe the latest peace declaration, the charts are showing a break-down of support layers opening the door for more selling near term, provided of course we don’t see a big reversal today. ULSD prices are once again leading the swings, reaching a low of $3.3124 overnight after touching a high of $3.71 Thursday morning. Assuming the current selling holds, look to the April lows for the next layer of chart support coming in at $80.65 for WTI, $3.26 for ULSD and $2.88 for RBOB. Brent crude already traded below its April low briefly this morning, marking the first time we’ve seen a value sub $86 since the first week of the war.

The EIA published a note on RIN prices this week, saying values were “close” to record highs, using inflation-adjusted values to argue that RIN values weren’t in fact smashing their previous records as they’re actually doing. It seems this may the first efforts by the feds to rationalize the higher blending mandates that have driven values nearly 50 cents/RIN over the previous highs we saw in 2021, with the EPA no doubt feeling pressure to reconsider its latest policy, particularly if it starts backfiring and encouraging U.S. refiners to cut run rates or export more supply to avoid the $15/barrel effective tax from the RVO.

The glut of RD on the West Coast isn’t going away with California values holding some 75-80 cents below CARB diesel grades + fees, and with CARB diesel basis values plummeting on top of the plummeting values in futures, we’re likely to see more barrels back up into Texas near term.

Exxon reported an upset in a sulfur recovery unit at its 612mb/day Beaumont TX refinery Thursday, but the filing notes operators were able to resume normal operations in under 2 hours so this should be a non-issue for supply.

Ukraine hit 2 more Russian refineries with drone strikes overnight, keeping up the recent elevated pace of attacks that have been causing shortages of fuel throughout Russia and forcing more export bans on refined products while also lowering Russia’s total oil export volume.

We’re now 12 days into the Atlantic hurricane season, and while the Pacific Basin has been active there have not been any threats to speak of in the Atlantic basin until today. The NHC is tracking a potential system in the Bay of Campeche this morning, that could head for the Texas coastline in the coming days, although this system is give very low odds of development at just 10% over the next week.