War, Peace, And Mixed Signals: Energy Prices React To A Turbulent Week

Oil prices are seeing a modest pullback Friday after reaching 6 month highs on Thursday as war & peace headlines continue to keep traders guessing.

Ukraine and Russia have reportedly agreed to a temporary cease-fire on energy assets for a week, while the Kremlin seems to be contradicting those claims. Meanwhile Turkey is attempting to broker talks between the U.S. and Iran to try and prevent another shooting war which will no doubt lead to plenty more misleading headlines and posts.

Today is expiration day for the February ULSD and RBOB contracts, so be sure you’re looking to the March contracts for price direction if your market hasn’t already switched. The February ULSD contract continues to trade independently of the rest of the energy complex as trading winds down, with big losses yesterday while others were moving higher and 7 cent gains so far this morning while most contracts are moving modestly into the red.

The EIA yesterday highlighted how petroleum diesel stepped in to supplement the New England power grid during the winter storm, with electricity generation from diesel surpassing that of natural gas for nearly 3 days. That surge in diesel demand helps explain some of the wild swings we’ve seen in the ULSD contract and its spreads this week. The Feb/March spread spiked to a 23 cent premium to March on Tuesday to only 10 cents Thursday and back up to 14 cents this morning. Most cash markets have been relatively immune to those swings as they’ve already rolled to trade against March, with the NYH the only market still trading at a premium to the February contract.

The next winter storm is set to pummel the Carolinas this weekend with lesser impacts up and down the East Coast. High winds will disrupt vessel traffic for 36-48 hours, which may create some tight terminal supplies in certain markets where the storm doesn’t keep drivers off the road. Utilities in the region have been racing to re-fill their diesel tanks ahead of the storm so they can once again be called on to supplement the grid if needed. The storm is also expected to bring freezing temperatures to Florida, but so far everyone’s favorite futures contract – Frozen Concentrated Orange Juice – has not seen much movement as the local crop comes under threat.

Today is also the first day that summer-grade gasoline will be the primary product assessed in the Los Angeles market, kicking off the 3 month-long spring RVP transition across the country.

Lukoil has agreed to sell a majority of its non-Russian-based assets to The Carlyle Group, pending approval by the U.S. treasury. You may remember the Carlyle Group as the company that took nearly $600 million in distributions from Philadelphia Energy Solutions (PES) before the largest refinery on the East Coast filed bankruptcy in 2018 and then the refinery blew up the following year.