Washington DC has taken over as the capital city of energy markets this week as headlines (both real and fake) Tuesday sparked the largest daily price swing of the year, and set the course for prices to reach new 3.5 year highs this morning.
Prices plunged around 10am Tuesday after rumors circulated that Russia had brokered a deal to keep the US in the Nuclear agreement. The selling was soon tempered by conflicting reports, and rallied further once the announcement came at 1pm that the US was planning on leaving the deal and impose new economic sanctions on Iran.
Crude oil prices had nearly a $3/barrel round-trip on the day, while refined products dropped 7 cents in the morning, only to take it all back in the afternoon, setting the stage for the overnight rally. The API assisted late in the afternoon with large declines in inventories said to be reported (crude -1.85, gasoline -2, diesel -6.6). The DOE’s weekly report is due out at 10:30 eastern.
Fears are that Iran’s oil production may drop back to the 3 million barrel/day range that it bottomed out at during the last period of economic sanctions. There are also fears that this could lead to further violence in the region – which were validated just hours after the announcement when Israeli forces were reported to target an Iranian military outpost in Syria.
The main difference from the last time Iran was under sanctions from a supply perspective is that Iraq is producing 1.5 million barrels/day more, and could offset a portion of any production declines from its neighbor.
Meanwhile, ethanol RINs plunged to their lowest value since November 2013 after a tweet from Ted Cruz that said the White House had come to a compromise with senators over the renewable fuel standard that would allow E15 blending year-round, and include RINs on exported renewables. Ethanol RINS initially traded down to the mid 20s on the news, only to bounce back to the low 30s by day’s end as skepticism crept through the marketplace.
We saw a sharp decline in RIN values last year after the White House floated the idea of including RINs for exported renewables, only to see prices spike back again when the EPA backed off that plan due to pressure from senators in the corn belt. Since the courts have already ruled that the EPA has limited authority to change the RFS, it seems that this plan will likely need to make it through congress before actually taking effect. Good luck with that.