Oil Hits 6-Month High on Tuesday

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

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange West Texas Intermediate and Intercontinental Exchange Brent crude futures rallied to fresh six-month highs Tuesday, and oil products futures have consolidated within Monday's trade range early in the session as the United States unexpectedly indicated there would be no waivers granted for buying Iranian oil.

U.S. sanctions targeting Iran's oil exports took effect in early November, but the United States allowed eight countries 180-day waivers to continue buying Iranian oil at reduced levels, which expire early next week. There were expectations the United States would allow South Korea and India to continue buying oil through an extension of the waivers known as Significant Reduction Exemptions.

"Iran's oil exports have plummeted due to our pressure. Since President Trump announced that we would cease participation in the nuclear deal in May 2018, over 1.5 million barrels [per day] of Iranian oil have been taken off the market, reducing the regime's revenue by billions of dollars," said the U.S. State Department Monday. The State Department estimates Iran has lost more than $10 billion in oil revenue since May 2018.

The State Department said the United States has commitments from Saudi Arabia and the United Arab Emirates to offset lost exports from Iran.

"The United States, Saudi Arabia, and the United Arab Emirates, three of the world's great energy producers, along with our friends and allies, are committed to ensuring that global oil markets remain adequately supplied," said the White House Press Secretary. "We have agreed to take timely action to assure that global demand is met as all Iranian oil is removed from the market."

Iranian crude production fell to the lowest output rate since October 2013 in March at 2.698 million barrels per day (bpd), according to the Organization of the Petroleum Exporting Countries.

Monday's announcement from the Trump administration prompted Tehran to threaten the closure of the Strait of Hormuz, which is considered the world's most important chokepoint for oil transit. The Strait is located between Iran and Oman, with the waterway situated between the Persian Gulf and Gulf of Oman where as much at 17 million barrels (bbl) of oil passes through daily. The Strait is 21 miles wide at its narrowest point.

Tehran's threat is likely bluster, with the U.S. Navy's Fifth Fleet headquartered in Bahrain.

Zeroing out Iran's oil exports further escalates already elevated geopolitical risk in global crude prices as supply from Venezuela plunged well below 1 million bpd in March. Supply in Libya, which had output above 1 million bpd in March, is also at risk amid a renewed civil war in the North African nation.

Nymex June WTI futures are up about $0.60 at $66.15 bbl, near a $66.31 six-month high on the spot continuation chart, with ICE June Brent $0.25 higher near $74.30 bbl after trading at a $74.70 six-month spot high.

Nymex May RBOB futures edged up 0.25 cents to near $2.1325 per gallon, holding below Monday's $2.1489 gallon nearly seven-month high on the spot continuous chart. Nymex May ULSD futures is 0.9 cents higher at $2.1130 gallon, holding below a $2.1242 gallon better-than five-month spot high traded Monday.

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

(CZ)

Brian Milne