Oil Rises As Political Chaos And Supply Risks Shake Markets

It’s a mixed bag for energy markets to start the week as a rash of desperate political moves confounded markets over the weekend. Oil prices are up around 2% in the early trading, while gasoline futures are clinging to small gains, and diesel futures see small losses.

The U.S. President claimed a new agreement with Russia to export diesel Friday afternoon in exchange for the U.S. easing sanctions that were just increased last month to try and pressure the Kremlin’s war efforts.

Not surprisingly, the details are lacking on such a major social media announcement, but the general timing and volumes suggest around 100mb/day of diesel could be exported under the deal, which is less than 20% of the diesel volumes lost during the current Russian export ban, provided of course Russian refineries that are operating at about half strength can actually make and transport the fuel.

See the chart below for an estimate of how the announced Russian volumes compare to the lost exports IF they’re able to actually process and ship the new volumes, and the deal isn’t blocked by U.S. courts.

6 U.S. senators, 4 republican and 2 democrat, issued a statement Sunday saying the agreement is illegal as it violates Russian sanctions passed by congress in 2022, and called for an immediate reversal.

An Axios report over the weekend suggests U.S. officials are threatening to remove support from Ukraine if they don’t stop hitting Russian refineries, and the Russian deal was due to Ukraine refusing to halt their refinery attacks despite repeated requests from the White House.

The U.S. President also announced a new “energy ceasefire” Sunday with no details provided. Shortly after the ceasefire announcement Russia attacked a Ukrainian power plant, and both Russia and Ukraine have since indicated they weren’t party to the agreement.

The UKMTO reported that at least 4 ships were struck near Hormuz over the weekend as Iran continues its stepped up its attacks on ships continues.

The IEA is encouraging member countries to consider more strategic reserve releases, and politely reminding those that haven’t followed through on their March commitments, in a statement issued Sunday. The IEA’s governing board meets on Thursday and is obviously working towards a new statement of cooperation to calm markets at that time.

The U.S. Treasury has not yet provided guidance on the dyed diesel tax deferral announced last week that was touted as a way to saved “$100 per fill up” but has since been dismissed by most of the industry as a waste of time.

Isaias has come and gone, and while the storm grew much stronger than originally forecast, its favorable shifts to the east seems to have spared the U.S. oil production and refining assets along the Gulf Coast. The Citgo terminal in Niceville Florida was just a few miles from the center of the storm as it made landfall Friday night, but was apparently unscathed, with truck loadings resuming by early Saturday afternoon. Other terminals in the region appear to be operating normally, while damage assessments for the ports nearby are underway but so far it appears that the fuel supply network dodged this bullet. The NHC is tracking another potential storm system in the Atlantic this morning, but only gives 20% odds of the storm developing with little to no risk to the U.S. at this time.

Baker Hughes reported a net increase of 6 oil rigs drilling in the U.S. last week, bringing the total oil rig count to a fresh 20 month high, while the natural gas rig count decreased by 1. The Primary Vision count of fracking crews in the U.S. increased by 7 on the week as U.S. producers seem to be getting more comfortable that the higher price environment may stick around for a while.

You’re not the only one growing tired of the daily market whiplash. Money managers cut their exposure to both long and short positions in 4 of the 5 major petroleum contracts, in what looks like a sign that the hot money may be looking for greener pastures. (Maybe they want to bet on football instead.) The lone exception came in the RBOB gasoline contract which saw modest increases in both new long and short positions held by the large speculative trade category last week.