DTN Oil Update
Oil Slips Despite Choked Supply as Trump Signals War End
VIENNA (DTN) -- Crude oil and products futures slipped Wednesday morning after U.S. President Donald Trump told reporters U.S. military operations against Iran could cease in the next two to three weeks and a negotiated deal with Tehran wasn't a necessary condition for the war to end.
The Strait of Hormuz, meanwhile, remained effectively shut, choking the world off roughly a fifth of oil and gas supply.
Tehran early Wednesday said the waterway will stay closed to vessel traffic from "hostile nations," and denied ongoing direct negotiations with the U.S. That was after President Trump threatened on Monday to strike Iranian energy sites if the Hormuz strait was not reopened immediately, before reversing his position the following day saying the U.S. has no need for the chokepoint adjacent to the Persian Gulf. Trump urged allies to force a reopening of the waterway themselves or buy jet fuel they required from the U.S., where supply, he said, was plentiful.
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
Oil prices have grown less sensitive over the past month to contradictory rhetoric from the White House, and market participants remained skeptical about deescalation as the U.S. added thousands of troops in the Middle East, bringing personnel count to about 50,000 and Iranian continued to attack its neighbors in reprisal to U.S.-Israeli strikes.
It was more likely Israeli Prime Minister Benjamin Netanyahu's comments on Tuesday which sparked hopes of a detente. In a stark reversal from a position held for decades, the prime minister said Iran did not pose an existential thread to Israel anymore. Market participants interpreted the comments as Netanyahu priming the public for an end of attacks.
An immediate end of hostilities would lower the risk premium in oil, but not immediately raise global supply. The month-long closure of the Hormuz strait forced shut north of 10 million bpd of Middle Eastern crude oil production, which will take weeks or months to restore to antebellum levels. A slew of energy infrastructure in the region -- from oil and gas fields, refineries and liquification plants to export terminals and tankers -- was damaged in the war, meaning supply will remain tight in the near future even if tanker traffic through the waterway were to return to full force tomorrow.
On the data front, the U.S. Energy Information Administration is to release at 10:30 a.m. EDT inventory data for domestic crude, gasoline and distillates for the week ended March 27. In the prior week ended March 20, the EIA said crude stocks climbed by 6.9 million barrels (bbl) to 456.2 million bbl, rising for a fifth consecutive week.
By 08:30 a.m. EDT, NYMEX WTI for May delivery was down $1.86 to $99.52 bbl, while the ICE Brent contract for June softened $1.99 to $102.08 bbl.
NYMEX RBOB futures for May delivery slipped by $0.0564 to $3.1475 gallon, while front-month ULSD futures slid $-0.0068 to $4.1070 gallon.
The U.S. Dollar Index also softened in reaction to hopes for a Middle East de-escalation, moving down 0.474 points to 99.285 against a basket of foreign currencies.