Oil Futures Plunge Into Close Wednesday

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange nosedived on Wednesday. The U.S. crude benchmark dropped back 5% and the international benchmark 4.2% as markets rapidly erased an Iran-related risk premium after U.S. President Donald Trump soothed concerns of a broader conflict in the Middle East that could have disrupted oil supply and the global economy.

Adding to the selling pressure, Wednesday's Energy Information Administration report showed a massive 14.8-million-barrel (bbl) build in total U.S. petroleum supply occurred last week, with 9.1 million bbl of the increase in gasoline stocks alone, pressuring front-month RBOB contract to a four-week spot low settlement at $1.6488, down 7.34 cents. NYMEX February ULSD futures dropped back 7.42 cents Wednesday to a $1.9582 per gallon settlement, weighed down by a larger-than-expected 5.3 million bbl build in distillate inventories.

At settlement, NYMEX February West Texas Intermediate futures fell $3.09 at $59.61 bbl -- the first settlement on the spot continuous chart below $60 bbl since Dec. 12, 2019. ICE March Brent futures settled $2.83 lower at $65.44 bbl, a three-week spot low. An unexpected 1.2-million-bbl build in U.S. commercial crude supplies on lower demand from domestic refineries added to the price downdraft.

Wednesday's wild price swings started overnight when Iran fired 15 ballistic missiles at two bases in Iraq that house U.S. forces, triggering a more than 4% price spike. Oil futures began walking back some of those gains after Trump tweeted that no American casualties were sustained due to the attacks and assessment of damages was underway and Iran signaled no further escalation. Iran's Foreign Minister Zarif said on Twitter the country didn't seek an escalation of the conflict or war, adding the missile strikes "concluded" Tehran's response to the U.S. assassination of Iran's General Qassem Soleimani.

Some reports even suggested Iran tried to minimize the damages from the attack by alerting Iraqi's leadership of an incoming offensive.

Addressing the nation, the president said Tehran appears to be standing down, "Which is a good thing for all parties concerned and a very good thing for the world."

Trump stopped short of making any direct threat of military action but said the United States "will immediately impose additional punishing economic sanctions on the Iranian regime" in response to what he called "Iranian aggression."

Trump also vowed he would not allow Iran to obtain a nuclear weapon and urged world powers to quit a 2015 nuclear accord with Iran that Washington abandoned in 2018 and work toward a new deal, opening the door for further negotiations. There was no immediate reaction from Iranian officials to Trump's comments.

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

(CZ)

Copyright 2020 DTN/The Progressive Farmer. All rights reserved.