WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange turned sharply higher in overnight trade, with International Brent benchmark surging 4.5% on reports two oil tankers came under attack near the Strait of Hormuz, while production from Organization of the Petroleum Exporting Countries collapsed to a five-year low in May.
Near 9 a.m. ET, NYMEX July West Texas Intermediate futures were up $1.75 near $52.90 per barrel (bbl), and ICE August Brent surged $2.15 to near $62.10 bbl. NYMEX July RBOB futures were up 3.8 cents near $1.7240 with the July ULSD contract rallying 4.55 cents to near $1.8250 gallon.
Oil futures pulled out of bear market territory Thursday morning in response to the breaking news of an alleged attack on two oil tankers near the Strait of Hormuz. Reuters reported the Bahrain-based Fifth Fleet received two maritime emergency calls from the tankers carrying crude oil to the ports of Singapore and Japan, which appeared to have been damaged by torpedo strikes. Iran said it rescued four dozen sailors following an incident.
The Strait of Hormuz, situated at the entrance of the Persian Gulf, is a waterway for about 40% of the world's seaborne oil shipments. The alleged attack came weeks after four vessels were damaged in the same waterway, escalating tensions between regional powers Iran and Saudi Arabia. Saudi Arabia accused Iran and allied Houthi rebels in neighboring Yemen of carrying "a terrorist act" on its oil infrastructure following the earlier incident.
OPEC reported its production fell 236,000 barrels per day (bpd) in May to 29.876 bpd, the lowest output rate since June 2014. According to its Monthly Oil Market Report, the majority of the decline within the 14-member alliance came from Iran, down 227,000 bpd to 2.37 million bpd, followed by Nigeria and Saudi Arabia. Saudi Arabia produced 9.69 million bpd in May, well below its 10.3 million bpd quota under OPEC accord, as the kingdom looks to ensure strong compliance with a six-month production agreement set to expire at month's end.
Iran on Wednesday said it seeks to remove oil revenues from the financial and budgetary policies to counter Washington's economic sanctions. Iran's Foreign Minister Javad Zarif said Tehran considers the latest round of U.S. sanction as economic terrorism, and is seeking to develop new areas of international trade. Reuters reported Iran's crude oil exports in May plummeted to 400,000 bpd, nearly 50% down from April's level.
Oil futures came under selling pressure on Wednesday after U.S. government said domestic crude and product inventories increased last week to a 23-month high, fueling concerns over slowing economy and lackluster fuel demand.
U.S. commercial crude oil inventory jumped 44.1 million bbl or 10% so far in 2019, with the supply build more pronounced in the second quarter, which also coincides with the tariff hike on Chinese imports and a lower domestic manufacturing output.
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