Refined Products Erase Gains Amid Rumors Of War And Geneva Negotiations

The quasi-holiday gains in refined products have eroded as U.S. traders return to the office Tuesday and the world tries to figure out whether or not we’re about to see another war.

Iran is still trying to flex its military muscle, firing 5 missiles in the straight of Hormuz this morning while short-lived indirect negotiations were taking place in Geneva. The U.S. meanwhile continues to stage assets in the region in what one report suggests could be an “intensive and sustained strike rate” of about 800 sorties a day. Expect rumors and reports of the results of the negotiations to continue influencing daily volatility, but don’t expect prices to make a meaningful move until more certainty on war or peace is confirmed.

Diesel futures continue to lead the swings, trading up nearly 6 cents from Friday’s close overnight, only to see those gains nearly erased this morning. RBOB gasoline futures have turned negative after trading up nearly 2.5 cents at their overnight high.

While warm weather across large parts of the country have made the winter storms an afterthought for many, the ripple effects on fuel supplies are still being felt. In the North East, numerous terminals remain on tight allocations with several short term outages reported as ships work to clear the backlog left by the frozen shipping lanes earlier in the month, and the spike in demand for diesel to support heating homes and generating power. Kpler noted last week that a rare arbitrage window had opened up to send diesel from Europe to the NE U.S., which should soon help alleviate that squeeze and let the local vessels catch up.

The law of unintended consequences: Mexico’s crackdown on fuel smuggling is reportedly hampering the auto-manufacturing industry with several plants said to have slowed operations while awaiting permits for legal lubricants and greases. That crackdown had a major impact on fuel demand in border areas across the U.S. last year when strong demand for fuel moving south of the border (much of which was apparently being listed as water or additive to avoid Mexican taxes) suddenly dried up as the government started checking those shipments. Multiple terminals from South Texas to Arizona saw drastic declines in demand once the legal purchases with illegal deliveries dried up.

Ukraine continues to hit Russian energy infrastructure with the 135mb/day Ilsky refinery struck again overnight, in addition to several other targets.