DTN Oil Update
Oil Sinks 3% on Saudi Pipeline Restart Plan, Fed Hike
SECAUCUS, N.J. (DTN) -- Oil prices tumbled 3% Wednesday, marking their sharpest drop in three weeks, on reports that Saudi Arabia could restore within days half of its East-West pipeline capacity jeopardized by Houthi militia attacks.
The first U.S. interest rate hike in three years also weighed as businesses expected higher capital stress from a Federal Reserve that could raise borrowing costs again before the end of the year to combat surging inflation.
NYMEX WTI crude for October delivery fell $3.41, or 3.23%, to settle at $102.43 bbl, after tumbling to $100.97 during the session. It was WTI's sharpest one-day drop since Aug. 25.
ICE Brent for November delivery moved down $3.04, or 2.82%, to $105.71 bbl. The session low was $104.
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Downstream, NYMEX ULSD for October delivery eased 2.24 cents, or 0.57%, to finish at $5.2396 gallon. It bottomed at $5.1227 for the day.
RBOB for October advanced 1.92cts, or 0.55%, to end the session at $3.4844 gallon. It touched a session low of $3.3891 earlier.
By 2:45 p.m. EDT, the U.S. Dollar Index gained 0.469 points to 99.810 against a basket of currencies, reacting to the Fed rate hike.
Energy futures sank on reports that Saudi engineers could bring some 2 million to 2.5 million bpd of throughput back online along the damaged 7 million bpd East-West pipeline. This was on top of ship-to-ship crude transfers off Oman's Sohar port overseen by Saudi authorities determined to keep Asian contract deliveries moving.
Saudi Arabia had suspended operations at its Red Sea export terminal at Yanbu earlier this week following strikes on the East-West pipeline by Iran-aligned Houthi rebels. It also canceled multiple European cargo deliveries, sparking fears that the pipeline outage could last for weeks.
The initial Saudi actions had boosted pricing for middle distillates, the most distressed part of the barrel since the outbreak of the U.S.-Iran war in March. On Wednesday, the diesel crack spread for U.S. refiners reached a record high of $117.97 bbl, while European gasoil futures neared all-time peaks.
Some of the concerns over distillate supply were alleviated after the Energy Information Administration (EIA) reported Wednesday that U.S. inventories for the product rose for a third consecutive week last week, climbing 1.6 million bbl to 107.9 million bbl.
Gasoline stocks also rose by 800,000 bbl during the week ended Sept. 11, the EIA reported.
The headline draw of 600,000 bbl in commercial crude stocks -- versus the 7.1 million bbl build reported a day ago by the American Petroleum Institute for the same week -- did little for bullish market sentiment. While refinery utilization dipped 1.0%, it remained at an elevated 96.8%, showing that the U.S. petroleum industry was doing its most to push out product.
The Federal Reserve announced Wednesday that it has raised U.S. interest rates by 25 basis points, bringing key U.S. lending rates to a range of between 3.75% and 4%.
It was the first monetary tightening since July 2023 by the central bank, with analysts expecting another hike at the Fed's December rate decision.