Volatility Returns As Energy Markets React To War, Policy, And Supply Shocks

Energy futures are seeing a strong move higher for a 3rd straight session as the hopes for peace have faded, and new signs emerge that the war and it’s impacts continue to expand.

Iran’s revolutionary guard is ramping up its threats this morning, saying that the Strait of Hormuz has significantly expanded from a 20-30 mile stretch to 300 miles, which is apparently setting the table for more attacks on shipping interests in the area.

Reports that the UAE had been quietly bombing Iranian targets (including an oil refinery in the gulf) prior to the cease-fire announcement last month offers a bit more color on their decision to leave OPEC and the recent attacks on their fuel terminals that bypass the strait.

The U.S. President said he would move to suspend the federal tax on gasoline, something that requires congressional approval and seems to have bipartisan support. One bill being proposed will suspend the 18.4 cent per gallon gasoline tax until October 1, but says nothing about suspending the federal diesel tax of 24.4 cents per gallon.

Chicago area spot prices continue to take the volatility award this week with differentials seeing 50-100 point swings, and 20-30 cent differences in value depending on which origin point and pricing agency you’re watching. With the strong gains in futures so far this morning, notional cash prices for wholesale gasoline grades are pushing $4/gallon in the region, while diesel prices are hovering around $5/gallon with premiums still holding $.80-$1.00 above futures. There have not been any new updates on the refinery hiccups at BP Whiting or Exxon Joliet facilities that helped contribute to the huge pricy rally, or on the rumors of an off-spec pipeline batch that further complicated resupply. It’s worth noting again that just 6 weeks ago this market was seeing $1/gallon discounts to neighboring regions, and now it’s approaching $1/gallon premiums in some cases.

There was a fire at the 125mb/day HF Sinclair refinery in Tulsa OK Monday, with news crews showing dramatic photos of a pressurized cylinder tank on fire along with a pickup truck nearby. Fortunately no injuries were reported and the fire was quickly brought under control. The location of the fire in a tank farm, not in operating units suggests that output at the facility will not be impacted.

Suncor’s 98mb/day refinery outside Denver was knocked offline due to a 3rd party power outage Monday causing significant flaring as units were forced to shut down without warning and then attempt restart. That facility had already been delayed in returning from spring maintenance which had kept supplies in the area relatively tight, although the RFG waivers granted by the EPA this year should help supplies quickly heal up once they’re fulling back online.

Mexico’s largest refinery, the 330mb Salina Cruz facility in Oaxaca reportedly had a fire Monday that injured 6 employees. A Reuters note suggests the fire happened during work on a cooling tower, although it’s not clear whether this will impact current production rates estimated at around 60% of the plant’s nameplate capacity, which is actually a pretty good rate for a refinery in Mexico, compared to U.S. facilities that consistently run north of 90%.

Marathon notified California regulators that it was extending planned maintenance at the Carson section of its 365mb/day Los Angeles refining complex by 10 days. That work had originally been scheduled for 4 days starting last week, but will now be extended through May 22nd. CARBOB gasoline differentials had dropped to their smallest premium to futures in 6 weeks Monday, prior to that report, as there appears to be plenty of imports heading to the region that commands the highest value in the country.

The EIA Monday highlighted the record-setting production of U.S. Oil, Natural Gas, Natural Gas liquids, and Renewable Fuels in 2025, the 4th consecutive year the country has set records for energy output. It’s worth highlighting here that even though biofuel producers had a brutal 2025, leading to several closures of production facilities, total renewable energy supply grew during the year thanks to large gains in Solar output, and some growth in wind power as well.

Later this morning we’ll see the agency’s latest projections in the May Short Term Energy Outlook. Keep in mind the previous STEO assumed the Iran conflict wouldn’t last through April and here we are already halfway through May with no end in sight.