Energy Markets Continue Their Rally To Begin August Trading After Iran’s Leader Ordered An Attack On Israel

Energy markets continue their rally to begin August trading after Iran’s leader ordered an attack on Israel in retaliation for the killing of a Hamas leader in their capital yesterday morning. The 10 cent runup in the wake of that attack was enough to break the downtrend that had pushed product prices sharply lower since July 4th, but today’s relatively cautious buying suggests we may move into a sideways pattern as traders wait to see whether the response will be measured like we saw in April, or if they spark increased violence that could spill over into the oil shipping lanes.

Equity markets are celebrating easing monetary policy this week. The FED set the stage for a rate cut in September in their FOMC announcement yesterday, and the Bank of England cut rates for the first time since 2020 this morning. Energy and equity markets had seen a strong correlation for a large part of June and July as demand hopes and fears were often taking the lead on daily price action, but those ties have slipped quickly now that supply concerns are once again in the forefront for energy.

The storm system known as “Disturbance 1” is still given 60% odds of getting a real name in the next week, but its path has made a notable shift to the west in the past 24 hours, which means we may have another tropical storm in the Gulf of Mexico next week. Dry air and the annual Saharan dust clouds moving across the Atlantic have hampered storm development over the past couple of weeks, but conditions are expected to become more favorable for this storm, and others very soon. It still does not appear that this system will move far enough west into the gulf to reach oil production and refining assets but will bring more heavy rain to the South East with Tampa bay and the Florida panhandle now looking like it might take the worst of it.

While Chicago gasoline basis values have eased dramatically from last week’s 60 cent spike, diesel prices in the region continue to rally, pushing local spots 20 cents or more above neighboring markets in the Group, USGC and NYH. The DOE’s weekly report showed another large drop in PADD 2 run rates on the week, and with another upset in the region reported this week, those rates may continue to slide.

Crude oil inventories dropped for a 5th straight week, despite another slide in total refinery run rates, as US producers continue to ramp up their export capacity. That shift to send WTI overseas instead of to Cushing is drawing down inventories at the historical crude oil hub and helping to push futures further into backwardation.

RIN values continued their recent slide, dropping to $.58/RIN for D4 and D6 values Wednesday after the EIA’s report showed US ethanol production reached a record high last week.

HF Sinclair reported their Q2 earnings this morning, and did their best to sound upbeat despite a 73% drop in refining earnings vs a year ago, and their renewables segment sliding into negative earnings territory. The company’s lubricants and midstream businesses saw healthy earnings increases, but that did not make much of a dent in the $356 million decline in EBITDA vs the 2nd quarter of 2023. The company ran its refineries hard during the quarter, exceeding 102% of nameplate capacity in the mid-continent region vs 88% a year ago. If you’ve been paying attention to the relative oversupply in the middle of the country this year, that extra 1.8 million gallons/day of production from HFS is certainly one major reason why the phenomenon exists.