DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange edged higher early Monday after Iran said it had seized another oil tanker in the Persian Gulf, leading to heightened tensions in a strategically important region for the global oil trade, while investors looked for more clarity on the potential restart of Kurdish oil exports through the Turkish port of Ceyhan amid a highly contested presidential elections.

Two oil tankers, the Advantage Sweet, flagged to the Marshall Islands, and the Niovi, flagged to Panama, were seized in less than one month by the Iranian Revolutionary Guard. "We have seen repeated Iranian threats, armed seizures and attacks against commercial shippers who are exercising their navigational rights and freedoms in international waterways," John Kirby, spokesman for the National Security Council, told reporters this weekend. While the seizure of two ships may not seem like a crisis just yet, traders expect it could lead to a risky situation where the U.S. Navy will have to protect commercial shipping in the Gulf from Iranian aggression. This seizure appears to be the Iranian response to the recent apprehension of Iranian crude in the vessel Suez Rajan off the coast of Singapore for sanctions violations. Tehran will likely attempt to negotiate the release of Advantage Sweet in a trade for the oil in Suez Rajan.

The Iranians have used these tactics repeatedly whenever they become dissatisfied with sanctions being applied to their operations anywhere in the world. Normally, the seizures are accompanied by threats to "shut down" the Strait of Hormuz at the southern end of the Gulf, through which sails nearly 40% of the world's oil.

Also, this week, investors are monitoring the results in Turkey's presidential elections, where the incumbent president Recep Tayyip Erdogan is running against his rival, Kemal Kilicdaroglu. Neither of the candidates appears to have received more than 50% of the vote in Sunday's recount, likely leading to a runoff election on May 28. The results of this election are important for several reasons. Turkey has stopped exports of Kurdish oil through its Mediterranean port of Ceyhan on March 28 in a bitter standoff with the Iraqi government that has contested the legitimacy of those sales. With a contested presidential election, it is unlikely the issue will be resolved anytime soon, shutting down nearly 250,000 barrels in daily oil exports from the Kurdistan region.

The oil exports from Kurdistan to Turkey were expected to begin in April following a trilateral deal, but Turkey has not given the green light allowing exports.

The halt of oil flows is threatening the Kurdistan Region's oil sector due to the lack of storage capacity in the region. Norwegian oil company DNO, one of the operators in the region, said on Thursday it will reduce operations in Kurdistan amid uncertainty of the dispute with Turkey.

"Given the uncertain timing of export resumption and, importantly, of payments by the Kurdistan Regional Government for previous oil sales, DNO has scaled back [spending] in Kurdistan, including drilling," the company said in a statement.

The stoppage of Kurdish oil flows has depressed production volumes from the Organization of the Petroleum Exporting Countries last month, according to OPEC's Monthly Oil Market Report. OPEC showed its collective oil production fell by 191,000 barrels per day (bpd) in April to 28.6 million bpd just as some of the group's largest producers have started production cuts aimed for May. The drop off in production pressed Iraqi crude production 292,000 bpd below its voluntary quota established in October 2022, and 81,000 bpd less than its quota that took effect this month.

Near 7:45 a.m. EDT, West Texas Intermediate climbed to $70.45 barrel (bbl), up $0.42 bbl in overnight trade, while international crude benchmark Brent for July delivery advanced to $74.60 bbl. NYMEX RBOB June futures edged higher by $0.0069 to $2.4371 gallon, while ULSD June futures gained $0.0155 to $2.3210 gallon.