Crude Jumps to Three-Year Highs

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange rallied Wednesday, gaining for the third straight session. West Texas Intermediate and Brent crude spiked to more than three-year highs as tensions in the Middle East escalate following the weekend use of chemical weapons in Syria and after Saudi Arabia said it downed a missile over Riyadh.

Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, intercepted a ballistic missile over its capital and two other missiles in the southern part of the country Wednesday, according to wire reports. Two drones elsewhere in the kingdom were also shot down, with Saudi Arabia and its allies fighting Houthi rebels in Yemen, which borders the country along the south.

This is not the first missile attack against the Saudis, with Houthi rebels also taking credit for damaging a Saudi crude tanker earlier this month. The Saudis blame Iran for providing arms support to the Houthis, which Tehran denies.

That news followed an early morning tweet from U.S. President Donald Trump that warned Russia a missile strike in Syria was coming in response to an April 7 attack near Damascus on a rebel stronghold with chemical weapons that killed women and children. Trump blasted Russian President Vladimir Putin for supporting Syrian President Bashar Assad in his seven-year civil war, with his tweet noting that Russia has vowed to shoot down any missile strikes over Syria. Iran is also supporting Assad.

NYMEX May West Texas Intermediate rallied to a $67.45 bbl three-year, four-month high on the spot continuation chart in response to the increased violence in the Middle East, and the threat it poses to oil production and transit. ICE June Brent crude, which traded at a better-than three-year spot high on Tuesday, posted a new spot high at $73.09 bbl, with the previous high reached late November 2014.

While pushing oil futures higher, major U.S. equity indices tumbled on the geopolitical developments. Oil futures and equities had moved in lockstep for weeks ahead of today. Market sentiment for oil futures is very bullish.

The rally followed mixed weekly data from the Energy Information Administration released midmorning, which included stock builds for U.S. crude and gasoline inventories for the first week of the second quarter and a modest draw in distillate stocks. U.S. crude production increased for the seventh consecutive week through April 6, according to EIA data, up 65,000 bpd to a fresh record high of 10.525 million bpd, while 1.033 million bpd higher than during the first week of the year. On Tuesday, EIA said it expects U.S. crude production to average 10.7 million bpd this year.

NYMEX May WTI futures settled up $1.31 at $66.82 bbl, the highest settlement since December 2014, while up $4.76 or 7.7% this week. ICE June Brent settled up $1.02 at $72.06 bbl, with the previous high settlement on the spot chart posted Dec. 1, 2014 at $72.54 bbl.

NYMEX May RBOB futures rallied 2.67cts to a $2.0676 gallon better-than seven-month high on the spot continuation chart, trimming the advance from a $2.0788 gallon intraday high.

NYMEX May ULSD futures advanced a steep 2.67cts to $2.0927 gallon, with the previous high settlement on the spot chart at $2.1407 gallon posted Jan. 29. ULSD futures pared the rally to a $2.1227 gallon intraday high.

Brian L. Milne can be reached at brian.milne@dtn.com

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Brian Milne