Energy Markets Stabilize as Ceasefire Holds and Risk Premiums Fade

It’s been a choppy but relatively quiet start for energy markets Wednesday as the ceasefire seems to be holding, and traders reposition for what may come next. Refined product futures did attempt to bounce overnight with both RBOB and ULSD prices up around 4 cents, only to see those gains evaporate around 7am and then try to move higher again in the past hour.

As the forward curve chart below shows, the risk premium has essentially been eliminated from crude oil contracts that moved into a steep backwardation to price in the risk of a supply disruption last week. The slide in prices the past 2 days would set the largest weekly decline since the chaos of 2022, but products are holding up better than crude, which is helping push crack spreads higher after 2 months of declines.

Not only does it appear that Iran is no longer threatening to interfere with the world’s largest energy bottleneck, but the U.S. President surprised many (again) when he announced an apparent relaxing of sanctions on China’s purchases of Iranian oil exports (which was later clarified to NOT be a relaxation of sanctions) while also hinting at a trade war bargaining chip. A WSJ article this morning highlights how this latest dust up may have China rethinking its plans on a Russian natural gas pipeline to diversify its supply if the Strait of Hormuz comes under threat again.

The API reported a small build of 764mb in gasoline inventories last week, while diesel stocks dropped by 1 million barrels and crude oil stocks dropped by 4.3 million barrels. The DOE’s weekly update is due out at its normal time this morning.

Another nail in the coffin? Delaware issued a notice of violation to PBF’s Delaware City refinery for a March upset, while an investigation into a much more significant upset continues. Based on how onerous state and local government fines have contributed to multiple California refinery closures in recent years, it will be interesting to see if the East Coast states take a different approach to try and avoid a similar fate for their few remaining facilities.

Total reported an upset at its Port Arthur TX refinery Tuesday in a reformer unit caused by a pressure control valve failure. No mention if that event was related to the storms in the area that prompted a flash flood watch in the morning, but so far that was the only upset reported in the hub that holds several of the country’s largest plants and is a key origin point for the Colonial pipeline.

The first named storm of the Atlantic hurricane season came and went Tuesday as Tropical Storm Andrea was named only to fizzle out later in the day with no impact on land. The NHC is not expecting any development for the next week.