June Opens With Energy Gains Amid Rising Global Tensions

Energy markets were starting June trading with strong gains after May saw the largest monthly losses for petroleum contracts since the COVID lockdowns 6 years ago. The gains have been tempered just before 8am central however, suggesting that the optimism for a deal continues even though the reality on the sea, air and land continues to tell a different story.

Overnight we saw gasoline futures make 10 cent gains, while ULSD added more than 15 cents after Israel expanded their campaign in Lebanon, both the U.S. and Iran seemed to take a tougher stance on negotiations and then traded more attacks. So far it’s unclear which if any headline is driving the pullback to just 3 cent gains for gasoline and 8 for diesel, with most of that pullback happening in the past hour.

Baker Hughes reported 4 more oil rigs were put to work last week as U.S. producers ramped up their activity for a 5th straight week. Of the 22 oil rigs added during May, 12 came in the Permian basin. The Primary Vision count of active fracking crews increased by 3 on the week, and had a similar May trajectory, adding 23 crews over the past 5 weeks and pushing the total to the highest level in a year.

Money managers were cutting their bets on higher energy prices last week, continuing the recent trend of apparent optimism that the worst crisis in the industry’s history will soon come to an end.

RBOB was the only contract to see a net increase in large speculative length last week, but the open interest held in the gasoline contract reached a 3 year low just as retail prices in the U.S. hit a 4 year high. The combination of volatility and higher margin requirements has pushed open interest for both gasoline and diesel contracts sharply lower in the past few month, just as it did in 2022.

RIN prices continued to surge last week with both D4 and D6 values reaching fresh record highs north of $2.30/RIN. With domestic production still far short of the EPA’s mandate, it seems like the RIN market is going to push higher until values get to a point that imports will once again be profitable – most have vanished since losing the $1/gallon Blender’s Tax Credit at the end of 2024 – or the higher prices force the EPA to adjust their plans.

California’s credit values have also been climbing over the past two weeks, although they remain far from the high levels set 2-3 years ago. The California Air Resources Board adopted amendments to the state’s Cap & Invest program after compromising on items that ensure neither the oil industry or environmentalists will be happy with the program.

Ukraine’s attacks on Russian energy infrastructure continued over the weekend with more refineries and oil pumping stations being attacked. Reports of fuel shortages across Russia, and parts of Russian occupied territory in Ukraine continue to highlight the impact of those attacks, while Russian officials are extending export bans on some products to limit the damage at home. The French military meanwhile seized another sanctioned Russian ship in the Atlantic over the weekend.

A fire was reported at Mexico’s Salina Cruz refinery Sunday, adding to a list of upsets across the country’s refining network that offers a reminder how complicated running these facilities can be even without drones attacking them.

Flint Hills reported unplanned flaring at its Corpus Christi West Refinery Friday, although it’s unclear which units were impacted. The emissions noted in the TCEQ filing suggest the facility was not forced to shut any operating units during the upset.