Israel-Iran De-escalation Fails, Energy Prices Continue to Climb

Energy prices are marching higher this morning as the (one-sided) fight between Israel and Iran extends into day 5. The distillate side of the barrel is leading the way so far this morning, trading up about 6 cents ahead of today’s open, while gasoline and crude oil futures tag along adding 3.25 cents per gallon and ~$1 per barrel, respectively.

Reports emerged around 9am CDT yesterday that Iran was willing to have a sit-down with Israel and the U.S. to discuss the winding down of hostilities, immediately dropping WTI futures prices $2 per barrel. Hopes of de-escalation faded over the next few hours after Israel issued evacuation orders for parts of Tehran ahead of imminent bombardment. One target hit was a state-run TV studio, in the middle of a live broadcast.

Consolation prize? Israel has seemed to have shifted its primary war objective from completely dismantling Iran’s nuclear program to settling for a regime change in Tehran. The IDF ran into tougher-than-expected resistance in getting the U.S. to join in on attacking Iran’s nuclear facilities, which turned out to be a lynchpin of the war plan, since some of Iran’s nuclear assets are essentially untouchable without the U.S.’s “bunker buster” missiles.

A fire broke out and was subsequently extinguished at the U.S.’s largest refinery this past Saturday, according to QCI. Gasoline rates have been cut at Marathon’s Galveston Bay 631 mbd refinery due to the explosion, which came on the heels of an FCC unit restart late last week.

Alphabet soup update:

OPEC’s Monthly Oil Market Report

The cartel is expecting global oil demand to grow by an average of 1.4 mmbd YoY in the second half of 2025, driven by steady air travel activity and a healthy driving season, boosting both jet fuel and gasoline demand. General distillate demand, however, is expected to slump along with manufacturing activity.

IEA’s Oil Market Report

The International Energy Agency highlighted the increased geopolitical tensions due to the recent shooting war in the ME, although tangible impacts to the industry remain a matter of speculation, so far. While some energy infrastructure has been hit on both sides of the fight, the major concern is that the conflict will spread in the area and potentially impact shipping routes through the Straight of Hormuz, through which 25% of the world’s oil traverses.

Letter combinations to come: the DOE will release their weekly report at 9:30 CDT tomorrow followed by the FOMC rate decision at 1pm CDT.