DTN Oil Update

Karim Bastati
DTN Analyst

VIENNA (DTN) -- Crude oil futures extended their rally Wednesday morning, with Brent's front-month contract surpassing the $100 bbl mark for the first time in nearly seven weeks as recent escalations in the U.S.-Iran war stoked supply fears.

By 9:15 a.m. EDT, ICE Brent for October delivery was up $2.71 to trade near $100.63 bbl, and NYMEX WTI for October delivery rose $2.72 to $95.75 bbl.

Downstream, NYMEX ULSD for October delivery advanced $0.1321 to $4.6999 gallon. RBOB futures bucked the trend, with the October contract retreating $0.0370 to $3.2155 gallon.

The U.S. Dollar Index softened by 0.145 points to 98.635 against a basket of foreign currencies.

Tuesday's Houthi attacks on Saudi refineries and other oil processing plants not only marked the latest escalation in the conflict, but also took offline globally already limited operable refining capacity. The rally in oil prices was also fueled by the U.S. striking four more Iranian crude oil tankers on Tuesday, bringing the tally since Saturday so far to seven. The U.S. Navy said that the attacks were a response to an Iranian attempt to strike a U.S. warship in the region.

Oil reportedly flowing through the Strait of Hormuz at around 40% of pre-war levels via a combination of dark transits through a U.S.-protected corridor and shuttling oil to tankers in the Gulf of Oman capped gains, as have ongoing crude flow diversions to ports outside of the Persian Gulf which Saudi Arabia and the UAE had established in response to the blockade of the waterway earlier this year.

Amid fading prospects of a timely resolution to the now more than six-month long supply disruption, market participants hoping for lower prices may have to look to the significant drop in global demand. Six months of high energy prices have added to inflationary pressures and hampered economic growth. At the same time, high fuel prices have in some markets led to a drastic decline in refined product demand. Sinopec, China's largest state-controlled oil company, on Wednesday forecast hefty drops in domestic gasoline and diesel consumption this year, of more than 8% and 11%, year-on-year, respectively.

Several forecast updates due this week will also be parsed for signs of demand destruction. The U.S. Energy Information Administration's (EIA) Short-Term Energy Outlook for September is scheduled for release at 12 p.m. EDT Wednesday. EIA's weekly inventory report will be out on Thursday, delayed by one day due to Monday's federal holiday.