DTN Oil Update

Karim Bastati
DTN Analyst

VIENNA (DTN) -- Oil prices softened Tuesday morning as signs of higher Middle Eastern oil supply outweighed concerns over stalling U.S.-Iranian negotiations.

By 08:50am EDT, ICE Brent for November delivery was down $2.17 to trade near $103.11 bbl, and NYMEX WTI for November delivery fell $2.21 to $90.39 bbl.

Downstream, NYMEX ULSD for October delivery slid $0.0853 to $4.67 gallon, and front-month RBOB futures retreated $0.0517 to $3.286 gallon.

The U.S. dollar index strengthened by 0.16 points to 101.085 against a basket of foreign currencies.

Saudi Aramco last week partially restored flows on its East-West pipeline, allowing exports from the Red Sea port of Yanbu to resume after a two-week hiatus. In combination with oil shuttling operations in the Gulf of Oman running near maximum capacity, and an increasingly porous Iranian blockade of the Strait of Hormuz, Middle Eastern oil exports have rebounded to their highest since the start of the war in late February. Ship-tracking experts estimate flows to now average around two thirds of pre-war levels.

U.S. and Iranian diplomats, meanwhile, continued the indirect exchange of messages via mediators after the White House on the weekend rejected Tehran's offer of a temporary ceasefire and a mutual lifting of naval blockades akin to June's so-called memorandum of understanding. While market participants welcomed the resumption of diplomatic efforts, reports suggested that negotiations have so far yielded little progress.

Oil futures remained well on track for a third consecutive monthly increase. Supply, particularly of refined products, continued to fall short of meeting demand, as evidenced by globally rescinding inventories. In the U.S., distillate fuel oil inventories continued to hover near seasonal decade-lows, trailing the five-year average by 12%, according to the most recent Energy Information Administration (EIA) data. Weekly inventory estimates from the American Petroleum Institute are scheduled for release later today, followed by official EIA data on Wednesday.

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