Volatility in Energy and Equity Markets Subdued Despite Increasing Geopolitical Concerns

Energy markets are treading water Wednesday after a strong Tuesday rally. Geopolitical concerns are keeping things interesting this week, but overall volatility remains subdued in both energy and equity markets, for now anyway.

Reports of Israeli strikes in Lebanon that suggest the ceasefire with Hezbollah may be crumbling, and the US conducting strikes in Syria both seemed to contribute to the bullish tone for markets Tuesday, while the chaotic situation in South Korea is keeping financial markets on edge but so far hasn’t seemed to spill over into the energy arena.

The API reported inventory builds across the board last week with gasoline stocks up 4.6 million barrels, diesel inventories up 1 million barrels, and crude inventories up 1.2 million barrels. The DOE’s weekly figures are due out at their normal time since last Friday was not a federal holiday.

The winter demand doldrums appear to be setting in with basis markets in most regions trading negative for both gasoline and diesel. That said, we have not yet seen the huge fire-sale discounts we saw in several markets this time last year, which forced numerous refineries to curtail their run rates. With crack spreads hovering near 3 year lows, the margin for error is low for most US refiners this winter, and it’s likely that some have already planned on lower run rates through the winter months.

Who do you believe? A Reuters report Tuesday said the US Treasury would not publish guidance on the “45Z” Clean Fuel Production Credit before the presidential transition on January 20th. Meanwhile, DTN and Bloomberg reports both said the Treasury would finalize their guidance prior to the transition, with the DTN article actually citing a source from the department. The big debate with this latest lack of clarity is whether or not the Blenders Tax Credit will be voted to remain in place while the CFPC details are ironed out. Importers of renewables, and those with sketchy carbon intensity calculations want the BTC as it applies $1/gallon to all fuels, whereas the CFPC makes producers prove their carbon reductions and does not apply to imports.

An EIA report this morning highlighted the continued growth in Hybrid vehicles, which pushed total nontraditional vehicle sales to a record high in Q3, despite a slump in pure EV sales.