News Reports That Israel Had Approved A Cease Fire Plan Pushed Futures Near Multi-Month Lows

Diesel prices touched a 15-month low overnight at $2.2318/gallon before buyers stepped in to push prices near break-even for the day around $2.26.

September RBOB futures reached a 6-month low at $2.2329 overnight, and values will drop another 17 cents or so when the October contract takes the prompt position in less than 2 weeks, meaning we could soon be talking about sub $2 wholesale gasoline prices soon. The RVP transition will also create confusion for part-time basis watchers who will see big jumps in differentials starting tonight as the Gulf Coast moves to September delivery, while cash prices will not move much due to the big spread in futures.

From a technical perspective, refined products look like they’re in rally-or-else territory with support layers breaking and targeting another slide of 15-20 cents if prices can’t find a floor before the end of August.

Futures were already looking weak early Monday, and then news reports that Israel had approved a cease fire plan pushed them near multi-month lows. It seems like the key factor containing the sell-off was the little detail that Hamas hadn’t yet agreed to the terms.

Beyond the headline “Supply Fears” that haven’t really materialized despite widespread violence in the Middle East the past 10 months, there’s also a fuel demand component to the situation. Estimates this week from Trafigura suggest that going the long way around to avoid Houthi attacks in the Red Sea are increasing diesel demand by around 500,000 barrels/day, so IF there’s a sudden agreement, there is likely to be yet another hit to demand on top of stagnant manufacturing activity in the US and China’s economic slowdown.

Any drop in marine fuel demand may hit the biofuels market particularly hard, as China is reportedly targeting that market for its excess biofuel now that Europe is enforcing anti-dumping regulations and the US is set to end its blenders tax credit for imports at the end of the year.

A Bloomberg article over the weekend highlighted how the slowdown in China’s growth may mean the end of a commodity super-cycle that’s propped up prices for oil, soybeans and iron ore for the past 2 decades.

If you need a live example of the challenges getting an agreement in war-time over the finish line, note the escalation of attacks Russian fuel terminals since Moscow denied reports that they’d agreed to discuss a plan to avoid targeting energy infrastructure last week.

The EIA took a look at state fuel taxes this morning, with California maintaining the prize of most expensive state to nobody’s surprise. Illinois, Pennsylvania, Indiana and Washington rounded out the top 5 most expensive fuel-tax states, while Alaska took the award for the lowest taxes since the state still has to pay people to live there year-round.