Volatility Persists In Energy Markets As Strait Activity And Iran Talks Diverge

Energy markets are seeing a modest bounce Thursday morning after another volatile overnight session, which followed 20 cent drops from refined products on Wednesday. The Iran deal tease (some version of which we’ve been dealing with for nearly 2 months now) continues to get the credit for any pullback in futures, while the actual actions in the strait suggest we’re still a far away from actual recovery.

There were signs of progress in negotiations today, even as both sides threaten to ramp up the violence if a deal doesn’t get done, and those conflicting headlines continue to drive 5-10 cent price swings for products day and night.

Yesterday Iran claimed that 26 ships had passed through the Strait as part of the IRGC’s new control efforts over the strait, which is still a far cry from the 130 that transited on average before the war, but far higher than the average since fighting began. Ship trackers meanwhile suggest the real number is far lower, and those crossing without subjecting themselves to Iranian control mechanisms is even lower.

Meanwhile, the U.S. Navy boarded an Iranian tanker and apparently forced it to change course as it continues its blockade of ships moving in and out of Iranian ports, and reports suggest that the U.S. is having to lean hard on Israel to keep the ceasefire intact.

Yesterday’s DOE report seemed to encourage the wave of selling in products that was already underway, as the inventory situation didn’t look quite as bad as the API’s estimates had suggested Tuesday afternoon. While stocks are still tight, domestic demand for both gasoline and diesel has continued to soften, keeping days of supply low, but not critical for the time being. More notes from the report are included below and in the attachments.

Marathon notified south coast regulators that it was planning a week’s worth of flaring at the Carson Section of its 375mb/day LA-area refining complex starting this afternoon. While gasoline basis diffs have seen their premiums shrinking recently, diesel diffs jumped on Wednesday, and now command a 40+ cent premium to futures as both Marathon and PBF appear to be struggling to get their plants fully online.

Valero reported a brief upset at its 260mb/day Texas City refinery Wednesday due to inclement weather, but it appears that the 1 hour of flaring in a gasoil hydrotreating unit won’t have a material impact on their operations.

Notes from the DOE’s weekly status report:

Total crude stocks dipped below 2024 levels last week, falling to a 2026 low as the SPR releases continue in increasing amounts and commercial inventories continue to decline. Crude less the SPR balance fell to about 8 million barrels below average with a big downward move in the adjustment and exports continuing at record levels while production held steady.

Refinery runs slowed in all PADDs except 1, which is operating at the high end of the chart but a bit shy of year-ago levels. PADDs 4 & 5 held well below average run rates while PADD 2 flattened out with more setbacks headed into the typical return from maintenance season. PADD 3, despite the slowdown, continued its weekly streak of seasonal highs for the year. Total run rates fell below ’24 & ’25, seasonally, but are still running at an above average pace.

Diesel stocks posted a small build with a large decline in PADD 1 being offset by a larger increase in PADD 3. Domestic demand remains low, but production increased across all PADDs except 1, while exports continue at seasonal highs. All PADDs storage levels are at the lower end of their charts with the total U.S. holding below the 5-year range for a 4th straight week.

Gasoline stocks continue the slide despite increased (but low) import levels, lower exports, and slow demand. However, U.S. production dropped to a seasonal low with all PADDs running well below average and holding below average storage levels. Total U.S. gasoline inventories are now about 11 million barrels below its 5-year average.

Jet stocks posted another build with increased imports and big drop in exports, despite a healthy uptick in demand. Total U.S. jet storage hit an 8th straight week of seasonal highs.