DTN Oil Update

Barani Krishnan
DTN Refined Fuels Market Reporter

SECAUCUS, N.J. (DTN) -- Crude futures had their largest rally in more than a month on Wednesday as the Middle East and its most important sea lane, the Strait of Hormuz, were caught in new hostilities after the U.S. canceled its ceasefire agreement with Iran.

The Middle East conflict resolution took a turn after U.S. President Donald Trump accused Tehran of unwarranted attacks on vessels passing the Strait of Hormuz that he said reneged on the memorandum of understanding (MoU) between the two countries. The U.S. also canceled Tuesday, its waiver of sanctions on the export and sales of Iranian oil.

Tehran, on its part, blamed the U.S. for violations by commercial vessels of Iranian policy over the strait. Following the renewed row between them, the two countries exchange fire Wednesday on mutual strategic targets in the region.

Responding to the escalation, NYMEX WTI crude for August delivery surged by $3.08 to settle at $73.52 bbl, posting a 4.4% rise that marked the biggest percentage advance for the U.S. crude benchmark since June 1. It hit a two-week high of $76.08 during the session.

ICE Brent for September rose $3.86 to close at $78.02 bbl, finishing up 5.2% for the sharpest one-day climb since May 4. The session high was $80.59.

In downstream activity Wednesday, NYMEX ULSD futures for August delivery jumped almost 11%, or $0.3658, to settle at $3.6575 gallon. NYMEX RBOB for August lurched up 5%, or $0.1495, to close at $3.1034 gallon.

The U.S. Dollar Index softened by 0.023 points to 100.755 against a basket of currencies.

Prior to this week, crude futures had fallen four straight weeks, with WTI touching $67.04 and Brent $70.14, after the 60-day ceasefire agreement signed on June 17. Earlier, they hit four-month highs, with WTI scaling $119.48 and Brent $126.41, as the conflict led to what the International Energy Agency called the largest supply disruption in oil's history.

Now, oil markets were bracing for "the risk of further supply disruptions from Iran or the wider Middle East if Tehran now chooses to close the Strait of Hormuz again", said Fawad Razaqzada, analyst at London's StoneX.

The Hormuz saw a rapid recovery in tanker traffic over the past two weeks after the signing of the U.S.-Iran ceasefire deal. Prior to that, traffic was at a virtual standstill on the waterway for more than three months as both Iran and the U.S. enforced blockades at separate points of the chokepoint. One of the world's busiest sea lanes, the strait used to provide passage for some 20 million bpd of petroleum liquids during normal times.

In U.S. inventory data, the Energy Information Administration (EIA) reported on Wednesday the first weekly rise in commercial crude stockpiles in 11 weeks.

Commercial crude oil inventories rose by 3 million bbl to 411.4 million bbl during the week ended July 3, although they remained 14.7 million bbl, or 3.4%, below the same week last year, the EIA said.

Distillate fuel stocks fell by 5 million bbl to 103.6 million bbl during the week to July 3, the lowest level since the week ended June 12.

Total motor gasoline balances fell by 1.9 million bbl to 212.1 million bbl during the week profiled, the lowest level since the week ended May 22.