Energy Markets Surge After Israel Launches Major Airstrikes On Iran

Energy markets are on pace for their strongest day of the year, to cap off their strongest week of the year, after Israel targeted Iran in widespread attacks overnight. While petroleum supply infrastructure appears to have been spared in the first wave of attacks, the heavy concentration of supply in the region has the buyers (and their trading algorithms) out in force.

Make no mistake, these attacks are fundamentally different from the relatively restrained airstrikes we saw last year, as Israel has used many more planes, increased the target sites by a wide margin, and has stated it will continue the attacks for “as long as it takes”. Iran has already started its retaliation with drone strikes against Israel that appear to have been relatively ineffective.

Crude oil prices are up $5-6/barrel at the moment, after trading up nearly $10/barrel at their overnight peak.

Diesel futures are up 14 cents, reaching a 2.5 month high at $2.33, after touching a high of $2.37 during the overnight scramble. The next level of resistance on the chart comes from the April high of $2.3447, and then there’s not much until prices get close to the $2.60 range.

RBOB gasoline futures are up 10 cents around the 8 o’clock hour with the prompt July contract trading around $2.24/gallon, after reaching a 2 month high at $2.30. If diesel futures can settle above the April high of $2.3375, there looks to be clear sailing on the chart all the way to February’s ceiling around $2.50.

Here are some of the major questions pertaining to petroleum supply and prices and what we know so far:

Has the Strait of Hormuz been impacted? That waterway sees 20% of the world’s oil pass by every day. So far its untouched, but Iran has threatened to disrupt tankers here previously, and any attacks would almost certainly require intervention from the US Navy.

Have Iranian oil ports and refineries been targeted? So far no. It appears the targets have been nuclear and military focused. The fact that Israel is so far abstaining from targeting petroleum infrastructure may be both a bargaining chip to give Iran an off ramp that saves face, and a nod to the US, no doubt followed by the threat that those targets could be next.

How will the Iranian proxies respond? Hamas, Hezbollah and Syria are all already effectively out of the game, meaning the Houthi rebels are the last major proxy force available to do Iran’s military bidding. Shipping through the Red Sea has not increased materially since the US-Houthi ceasefire, so any impact from this segment of the war seems to already be baked into shipping markets.

Before the Iran news took over the headlines, environmental news still mattered. In addition to the legal battles over EV rules, another batch of rumors on the EPA’s plans for the Renewable Fuel Standard sent RINs on their latest rollercoaster ride. D6 values jumped a nickel in early morning trade after reports that the White House had sent the RFS proposal back to the EPA, only to see values drop by a dime in the afternoon after more rumors that the biofuel mandate would be lower than anticipated. To clarify, everything is just a rumor or report of a rumor at this point, and the EPA still has to release its proposed rule, have an open comment period and then issue the final rule. So far this morning RINs are continuing their down trend, with D6 and D4 values both down 3-4 cents from where they left off Thursday.