DTN Oil Update

Karim Bastati
DTN Analyst

VIENNA (DTN) -- Crude oil futures plummeted by as much as 12% Wednesday morning, hitting to two-week lows on signs of an imminent diplomatic resolution to the U.S.-Israel and Iran war, which has been disrupting a fifth of global oil supply for more than two months.

Near 7:40 a.m. EDT, ICE Brent for July delivery fell $11.79 to $98.08 bbl, and NYMEX WTI for June delivery slid $11.85 to $90.42 bbl.

Downstream, NYMEX ULSD futures for June delivery fell by $0.4121 to $3.6181 gallon, and front-month NYMEX RBOB futures retreated $0.2992 to $3.3214 gallon.

The U.S. Dollar Index slumped to its lowest since the start of the war, shedding 0.735 points to 97.575 against a basket of foreign currencies.

U.S. President Donald Trump on Tuesday paused military attempts to break the Iranian blockade of the Strait of Hormuz and guide stranded vessels through the waterway after only one day, citing progress in negotiations. He said that he halted "Project Freedom" for a short period of time at Pakistan's request to see if an agreement can be reached and signed. Islamabad has been a key mediator between the warring parties and helped negotiate the ceasefire enacted last month. Oil prices, which rose on Monday as U.S.-Iranian naval skirmishes raised concerns about the ceasefire holding, slid in reaction to the announcement.

Prices extended their decline early Wednesday on reports that Washington and Tehran were close to an agreement to end the war. The U.S. reportedly expects an answer to the one-page memo, which involves Iran halting nuclear enrichment and both sides lifting their blockade of the Strait of Hormuz, within the next 48 hours.

Yet, prices remained well above their lowest point reached since the start of the conflict and were still some 40% above pre-war levels. While geopolitical risks have cooled, the disruption in physical oil supply, which will likely take months to recover once restrictions are lifted, for now remains unchanged.

The largest oil supply disruption in history has led to a rapid drawdown of global inventories, including in the U.S., where petroleum exports soared to new record highs. The American Petroleum Institute on Tuesday reported that domestic stockpiles continued to shrink last week. According to the API, commercial crude inventories receded by 8.41 million bbl in the week ended May 1, and gasoline and distillate fuel oil stocks fell by 6.1 million bbl and 4.6 million bbl, respectively. Official inventory data from the U.S. Energy Information Administration is scheduled for 10:30 a.m. EDT release today.