Energy Markets Stalling As Geopolitics Take Center Stage

Energy markets are hovering near break-even levels after the early wave of risk-off selling following the U.S. debt downgrade fizzled Monday. The sideways action after a strong recovery rally last week suggests traders are content to consolidate positions with a “wait and see” approach as the unofficial start to driving season draws near.

Geopolitics are taking center stage again this week with European nations announcing new sanctions on Russia, after Monday’s call between the U.S. and Russian leaders failed to create any movement on the war in Ukraine. While the new plans target 189 “Shadow Fleet” vessels that have allowed Russia’s oil exports to circumvent earlier sanctions, the lack of U.S. participation in this 17th round of sanctions certainly gives it less weight.

While the Houthis have stopped firing at U.S. ships after weeks of bombardment, the group is not done fighting as they declared a “maritime blockade” of Israel’s Haifa port Monday. While their ability to actually block the port may be limited, their willingness to continue with missile attacks suggests there won’t be any meaningful reopening of shipping lanes through the Red Sea anytime soon.

Trouble in Corpus? Both Flint Hills and Valero reported upsets at their Corpus Christi area refineries Monday. Flint Hills reported an issue with a flare gas system at its West facility, which lasted about 3 hours on Sunday, and so far doesn’t appear to have impacted operating rates. Valero meanwhile reported that a 3rd party power outage knocked multiple pieces of equipment offline at its West plant, which resulted in roughly 2 hours of flaring around the same time. So far allocations in the area don’t seem to have been restricted suggesting the facilities are operating, but it does offer a reminder that it doesn’t take a hurricane to disrupt refinery operations as we approach what some believe will be a record hot summer with record setting electricity demand.

It’s not just California that has a refinery problem: A recent Wood McKenzie report suggests that nearly 20% of all refineries globally could face closures within the next decade, with many countries facing difficult decisions to try and balance energy security with climate goals and budget concerns.