DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange rallied Tuesday, as separate attacks in Russia and the Middle East raised concern over global oil supply that followed data showing emerging manufacturing activity in the United States and China after a prolonged slowdown.

A Ukrainian drone attack deep inside Russia against an oil refinery overnight renewed concern Kyiv would again strike Russian energy infrastructure as it did in March despite calls from the United States for Ukraine to not target oil refineries. The broader market affect might be minimized as Russia reverts to exporting more crude oil than refined products but does highlight the vulnerability of Russian energy assets far beyond the front lines in Ukraine.

Also overnight, an Israeli air strike on the Iranian embassy in Syria reportedly killed multiple Iranian military including two generals, with Iran promising retaliation. While a low-key war was already taking place between Israel and Iran, the embassy bombing could escalate hostilities between the adversaries while Israel continues a war with Hamas in Gaza.

The overnight attacks expand a geopolitical premium embedded in oil prices amid higher shipping costs caused by more than 100 attacks on commercial shipping in the Red Sea by Houthi rebels since October 2023 in response to the Israeli-Hamas war in Gaza.

Production restraint by OPEC+ to support higher oil prices is expected to spur a 900,000-bpd drawdown from global oil inventory in the second quarter, according to the Energy Information Administration. OPEC+ extended voluntary production cuts of 2.2 million bpd in the first quarter through June 30, tightening the global oil market balance. The Joint Ministerial Monitoring Committee for OPEC+ meets Wednesday to review market conditions, although no recommendations to adjust production quotas are expected until the OPEC+ biannual meeting on June 1.

The demand side of the equation also got a boost this week following Monday's report from the Institute of Supply Management that manufacturing activity in the United States expanded in March for the first time since September 2022 alongside growth in manufacturing activity in China, where the economy has struggled to gain traction amid a property bubble and exodus of foreign capital. On Monday, the Atlanta Federal Reserve Bank's GDPNow model estimates first quarter U.S. gross domestic product growth of 2.8%, up from 2.3% on Friday (3/29).

Both the U.S. and international crude benchmarks rallied to five-month highs Tuesday, with NYMEX May West Texas Intermediate futures settling $1.44 higher at $85.15 bbl and ICE June Brent rallying $1.50 to a $88.92 bbl settlement. NYMEX May ULSD futures surged $0.0848 to a $2.7119 gallon two-week high on a spot continuous basis after testing trendline support on Monday. NYMEX May RBOB futures gained $0.0489 with a $2.7589 gallon settlement, holding below the $2.7749 gallon eight-month high on the spot continuous chart traded March 28 by the now expired April contract.

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