Energy Futures Hanging Flat As Traders Weigh Middle East Developments

Energy futures are hanging around flat this morning as markets weigh the possibility of de-escalation in the Middle East after a chance encounter ends with the death of the most wanted man in Gaza. On one hand, Hamas’ leadership change has renewed hopes for a ceasefire in the Strip, on the other, sympathetic factions have vowed vengeance and increased hostilities. Even if traders decide these developments are bullish, it’s unlikely crude oil futures will end the week with gains as WTI is trading nearly $5 per barrel lower than it did on Monday.

The Department of Energy reported crude oil inventories dropping last week, despite imports dropping to their lowest levels since March and production hitting a fresh all-time high. The drawdown can be accounted for by the uptick in refinery runs, specifically in PADD 3, and the bump exports, which set a new seasonal high week-before-last. The API’s 6 million barrel drop prediction in gasoline stockpiles ended up being a little exaggerated with the official report coming in at -2.2 million: PADD 2 showed the lone increase while PADDs 3 & 5 both hit multi-year lows.

The low West Coast inventory report comes just 3 days after California passed its minimum inventory law which attempts to curb price spikes for consumers when supplies get tight, just like they are right now. Coincidentally, P66 announced yesterday it’ll close its Wilmington and Carson refineries, which have been operating for over 100 years and produce about 8% of California’s gasoline, by late 2025. However, the company insists the decision is unrelated to the new law. Surely it has nothing to do with their $600 million guilty verdict decided by a California jury on Wednesday either.

Chevron is rumored to be shifting away from renewable diesel production at its El Segundo refinery, transitioning back to diesel produced from crude oil. While this may be bad news for the environment at large, the ease with which the switch is made from RD to D(?) leaves the door open for the plant to switch back quickly, should the federal/state incentives make it economically viable to do so. Chevron announced in August that it will be moving its headquarters to Houston from San Ramon, California, where it’s been for 145 years.

The National Oceanic and Atmospheric Administration updated the odds of development for the system growing in the western Caribbean to 50% over the next week. However, models predict it will push across southern Mexico, Belize, and Guatemala before dissipating in the Pacific and leaving U.S. refineries well enough alone.