Oil Futures Surge on Tightening Supply

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Intercontinental Exchange Brent crude extended higher on Monday with both West Texas Intermediate and Brent settling at their highest levels in six months on news Washington will end sanctions waivers for major Iranian oil importers amid an already tightening global oil market.

White House announced on Monday it would no longer grant waivers from unilateral U.S. sanctions on Tehran in order "to bring Iran's oil exports to zero." Eight countries, which initially received 180-day reprieves to continue purchasing Iranian oil, are now faced with the prospect of finding alternative supplies.

Saudi Arabia Energy Minister Khalid al-Falih said on Monday the Kingdom would coordinate with other oil producers to ensure adequate supplies are available to consumers that previously purchased crude from Iran "while ensuring the global oil market does not go out of balance." U.S. President Donald Trump said in a tweet, "Saudi Arabia and others in OPEC will more than make up the Oil Flow difference in our now Full Sanctions on Iranian Oil."

Several countries have already objected to the White House decision to halt waivers, including Turkey who rejected to oblige to the latest round of U.S. sanctions, while China -- the largest buyer of Iranian oil, accused the United States of reaching beyond its jurisdiction. Following the White House announcement, Iran reportedly threatened to close the Strait of Hormuz -- a vital waterway that carries a fifth of the world's traded oil, further escalating the risk of supply disruptions.

Libya, another wildcard for global oil supply, descended into a full-blown civil war over the weekend with Tripoli, the country's capital, under rocket attack from General Khalifa Haftar's armed forces. Trump reportedly reached out to the rogue general last week to discuss the prospects of Libya's transition to a stable, democratic political system. The head of the country's United Nations-backed government said on Sunday Trump's outreach to Haftar would further destabilize the situation on the ground and push oil prices higher.

The U.S. dollar eased on Monday, falling 0.2% on the session to 96.955, providing further support for WTI.

NYMEX WTI May futures contract expired $1.70 higher at $65.70 bbl, while next-month June contract finished the session at $0.15 discount at $65.55 bbl. Brent ICE June contract spiked $2.07 to settle at $74.04, widening the spread to U.S. benchmark to $8.70 bbl. NYMEX ULSD May contract advanced 3.31cts to $2.1040 gallon, while RBOB May futures surged 5.76cts to $2.1298 gallon, a fresh six-month high.

Liubov Georges can be reached at liubov.georges@dtn.com