DTN Oil Update

Karim Bastati
DTN Analyst

VIENNA (DTN) -- Oil and product futures rallied Wednesday morning as tanker traffic through the Strait of Hormuz remained almost completely idle amid reports of Iran deploying sea mines in the vital oil chokepoint. Emergency release plans from strategic oil reserves kept gains in check.

Members of the International Energy Agency are planning the coordinated release of 300 to 400 million bbl of crude oil from strategic reserves over a span of two months, amounting to 5 to 6.7 million bpd of supply, or about half of currently disrupted flows. A release of this size would be unprecedented and dwarf the 182 million bbl released in response to Russia's invasion of Ukraine four years ago. The IEA is set to come to a decision in a meeting scheduled for later today.

Ongoing disruptions, meanwhile, have forced more oil producers in the Middle East to cut output. Gulf states have throttled crude oil production by a combined 6.5 million bpd so far. Most producers rely entirely on the Persian Gulf for oil exports, and Saudi Arabia's and the UAE's capacity to divert flows to ports outside are limited. Loadings at the Red Sea port of Yanbu in Saudi Arabia have doubled to more than 2 million bpd since the closure of the Strait of Hormuz. Given operational constraints at the port and the East-West pipeline's maximum capacity, analysts estimate that up to 4.5 million bpd could be shipped from the port. Saudi Aramco on Tuesday said its pipelines can move up to 7 million bpd to the Red Sea and up to 5 million bpd to the export market.

Tapping strategic reserves and diverting exports to the Red Sea would alleviate some tightness in the crude oil market. However, some 5 million bpd of refined products, mostly middle distillates, also remained stranded in the Persian Gulf, where several refiners had to shut operations and plants were damaged by Iranian attacks and drone debris. This was reflected in futures prices: while Brent on Wednesday morning was trading 8% below Monday's closing price, ULSD futures surpassed it by 0.5%.

At 9:05 a.m. EDT, NYMEX WTI crude futures for April delivery were up $2.37 to trade near $85.82 bbl, and ICE Brent crude for May delivery advanced $2.63 to $90.43 bbl.

Downstream, RBOB futures for April delivery climbed $0.1094 to $2.7497 gallon, and ULSD futures soared $0.2925 to $3.6391 gallon.

The U.S. Dollar Index strengthened by 0.245 points to 98.975 against a basket of foreign currencies.

An official U.S. oil inventory report capturing the first week since the closure of the Strait of Hormuz is scheduled for release at 10:30 a.m. EDT today by the Energy Information Administration. Market observers are expecting drawdowns to stocks, but the effects of the Middle East supply outage will likely take weeks before fully materializing.