CRANBURY, N.J. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent crude on the Intercontinental Exchange settled Thursday's session mostly lower, reversing early gains in market-on-close trade after Brent futures rallied through $75 per barrel (bbl) on concern over tightening supply amid U.S. sanctions on Iran and a short squeeze in eastern Europe due to contaminated Russian oil.
Refineries in Poland and Germany suspended imports of Russian oil from a key pipeline because of tainted oil that Russia indicates won't be replaced until April 29, according to Reuters, prompting operators to seek alternative supply and boosting Brent crude to a $75.60 bbl nearly six-month high.
The volume of affected tainted oil -- blamed on elevated levels of organic chloride used to boost production but must be separated from oil before pipeline shipment -- is estimated at 700,000 barrels per day (bpd). Organic chloride corrodes refinery units, so refiners will buy replacement supply in the spot market or lower run rates.
The bullish development initially offset a bearish 5.5 million bbl increase in U.S. commercial crude stocks last week reported Wednesday by the Energy Information Administration that lifted inventory to a more than 18-month high. West Texas Intermediate futures were also under pressure from U.S. dollar strength, which hit a nearly two-year high at 98.055 in index trading, as the U.S. economy continues to outperform other world economies.
Since oil trades globally in dollar denominations, a stronger greenback means fewer dollars are needed to purchase oil domestically. However, the dollar's strength lifts the crude acquisition costs for overseas buyers which can be a drag on demand, especially for countries such as India. Dollar strength tied with oil prices at elevated price points can adversely affect global oil demand.
Nymex June WTI futures settled down $0.68 at $65.21 bbl, unable to top Tuesday's $66.60 nearly six-month high on the spot continuation chart, reaching an intraday high at $66.28 in early trading. ICE June Brent settled down $0.22 at $74.35 bbl, although widened its premium to WTI to a $9.14 bbl six-week high.
Brent outpaced WTI three out of four sessions this week, as Monday's unexpected announcement from the U.S. State Department that there will be no waivers issued allowing countries to continue purchasing U.S. sanctioned Iranian oil lifted the international benchmark. Current U.S. waivers on Iranian crude exports expire May 2.
In announcing the decision, the State Department said the global oil market was sufficiently supplied, and Saudi Arabia and United Arab Emirates would make up a shortfall if necessary. On Tuesday, the International Energy Agency also said the market was balanced and had a "comfortable" supply cushion of 3.3 million bpd, with 2.2 million bpd of the cushion located in Saudi Arabia.
Lost Russian barrels and Brent's widening premium could boost U.S. crude exports, which averaged 2.539 million bpd during the four weeks ended April 19, EIA data shows.
Nymex May RBOB futures rallied to a nearly eight-month high at $2.1559 gallon in early trading following bullish statistics released Wednesday by the EIA showing a larger-than-expected 2.1 million bbl decline in supply, with inventory below normal in the second quarter at 225.8 million bbl on April 19. Days of forward gasoline supply slide from a 29.8 day 24-year high in mid-January to a nearly nine-month low at 23.9 days on April 19.
Nymex May RBOB futures inched up 0.36 cents to a $2.1321 gallon settlement—the highest settlement since the start of the fourth quarter. May ULSD futures settled down a fractional six points at $2.0981 gallon.
Brian L. Milne can be reached at firstname.lastname@example.org
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