DTN Oil

CRANBURY, N.J. (DTN) -- Brent crude on the Intercontinental Exchange and West Texas Intermediate futures on the New York Mercantile Exchange advanced Friday but settled well off early highs spurred by escalating violence in the Middle East, while ULSD futures reversed lower from a six-week high and the RBOB contract nudged out a gain as harsh weather conditions move across the central United States.

Brutal cold air will engulf much of the United States in an active weather pattern for the next 10 days, according to DTN's Frontier Weather, increasing demand for heating fuels, with heavy snow moving from eastern Nebraska and Iowa across northern Illinois, into Wisconsin and Minnesota through Saturday. Snowstorms and heavy winds will cross the Great Lakes and Upstate New York into New England this weekend, with heavy rains affecting the rest of the East Coast.

While the heavy snowfall will spur diesel demand as municipalities dispatch plows to clear roadways, it has also prompted numerous flight cancellations, with more than 1,600 flights reported canceled Friday afternoon. Road travel will also be affected in parts of the country, with the RBOB contract finding support at the $2.2143 20-day moving average to eke out a gain.

Traders will closely monitor the weather over the three-day holiday weekend, with markets closed on Monday for the Martin Luther King Jr. federal holiday. An overnight rally was partly influenced by concerns over freezing rain conditions impacting refinery and fuel distribution operations in Texas and Louisiana, but the countervailing effect of reduced transportation demand and abundant inventory assuaged immediate worry. Energy Information Administration last reported U.S. commercial stocks of gasoline at a 244.982 million bbl 22-month high, and the distillate fuel stock level at a 132.4 million bbl 16-month high.

A barrage of attacks by U.S. and UK forces in the Red Sea by submarine, ship, and air on Houthi terrorists in Yemen Thursday night in response to continuous attacks by the Iranian-funded militants on commercial shipping in and near the Red Sea since October pushed Brent futures above $80 and WTI over $75 bbl for the first time in 2024. The retaliatory action by the United States and United Kingdom also followed the seizure of a Marshall Island-flagged oil tanker off the coast of Oman by Iran less than 24 hours earlier.

Bombast from Iran and the Houthis followed Thursday night's attacks by the Western partners, while Saudi Arabia called for restraint and "avoiding escalation." On Friday, the Houthis attacked an oil tanker in the Gulf of Aden near the Bab al-Mandab chokepoint that connects to the Red Sea, which turned out to be carrying Russian oil. Russia is an ally of Iran.

While further escalation could inflame the region into an unwanted broader war in the oil-rich Middle East, to date, oil supply continues to flow through the Suez Canal-Red Sea corridor, the shortest transit route between Europe and Asia. With global oil supplies seen again outpacing growing world oil demand in 2024 as it did in 2023, traders faded early session highs on Friday.

At settlement, ICE March Brent gained $0.88 at $78.29 bbl, pulling back from a $80.75 bbl high, and NYMEX February WTI futures trimmed an advance from a $75.25 high to settle at $72.68 bbl, up $0.66. NYMEX February RBOB futures inched up $0.0060 with a $2.1203 gallon settlement, and February ULSD futures reversed down from a $2.7863 high to settle at $2.6693 gallon, down $0.0045.

Brian L. Milne can be reached at brian.milne@dtn.com