DTN Oil Update
WTI at $94 as Oil Tumbles Amid Tenuous Iran Ceasefire
SECAUCUS, N.J. (DTN) -- Crude futures retreated to mid-$90 bbl levels Wednesday and product prices tumbled too, driven by a two-week ceasefire announced over the Iran war.
New attacks by Tehran on neighboring's countries' oil and gas facilities, in retaliation to missile fires by Israel on Lebanon, tested the U.S. resolve to enforce a ceasefire to allow oil tankers unhindered passage on the Strait of Hormuz -- the transit point for 20 million bpd of petroleum liquids.
Some ships reported being turned away from the strait on Wednesday, creating confusion over accessibility to the waterway effectively blockaded by Iran after the start of U.S.-Israeli military campaign against it on Feb. 27. The Financial Times, meanwhile, cited Iran oil industry official Hamid Hosseini as saying that Tehran will charge $1 for every barrel that passes the strait, to be paid in cryptocurrency.
Oil prices were also driven down by speculation that the Federal Reserve might raise U.S. interest rates if energy prices drove inflation much higher than the central bank's 2% per annum target. "It could be appropriate to raise the target range for the federal funds rate at future meetings," the Fed said in the minutes of its March meeting published on Wednesday.
NYMEX WTI for May delivery settled down $18.54, or 16%, at $94.41 bbl, after a four-year high at $116.56 on Tuesday, April 7.
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ICE Brent for June closed down $14.52, or 13%, tar $94.75 bbl. The front-month contract for the global crude benchmark hit $119.13 in mid-March, reaching its highest since the February 2022 invasion of Ukraine by Russia.
WTI also returned to trading at a discount Brent, after a brief but phenomenal premium against the global benchmark that reached above $20 bbl, its highest since 2008.
The spread between front-month May WTI and the immediate subsequent month, June, narrowed to around $7 bbl after reaching a record high above $15.50 earlier this week.
RBOB futures for May delivery settled down by $0.2993 at $3.0059 gallon. It rose to $3.3628 in the prior session, reaching its highest since July 2022.
Front-month ULSD futures finished down $0.669 at $ 3.8084 gallon, after a four-year high of $4.7061 on March 20.
The U.S. Dollar Index fell by 0.887 points to 98.795 against a basket of foreign currencies.
Iran threatened to reimpose its blockade on the Strait of Hormuz after Israel said the ceasefire announced by U.S. President Donald Trump late on Tuesday, April 7, did not exempt it from targeting Hezbollah militants in Lebanon, who are critical allies to Iran's military.
Israeli Prime Minister Benjamin Netanyahu described the ceasefire as an accessory to his aim of ensuring all highly enriched uranium is removed from Iran to deprive it the opportunity of developing a nuclear bomb that could strike his nation.
"This isn't the war's end," Netanyahu told a media briefing. "We are ready to return to fighting at any time."
Tehran maintains its ceasefire acceptance follows a 10-point peace framework it had presented to the United States. Trump, meanwhile, signaled the U.S. will only negotiate meaningful ceasefire points behind closed doors, while administration officials noting he had not expressed formal opposition to Israel's continued strikes bombing Hezbollah.
While the U.S. worked to salvage the peace effort over the Middle East, Tehran trained its drones at its neighbors, reportedly damaging power and oil facilities in Kuwait and a Saudi oil pipeline. A diplomatic support center at Baghdad International Airport and the vicinity of the U.S. Embassy in Iraq was also targeted by Iran, reports said.
In other Iran-related news, ExxonMobil said it expects a 6% drop in global production for the first quarter of this year as the conflict in the Middle East impacts output at the world's largest publicly-traded energy company.
On the data front, U.S. crude stocks climbed by 3.1 million bbl during the week ended April 3 to 464.7 million bbl, its highest since June 11, 2021, the Energy Information Administration said.
Total motor gasoline inventories fell by 1.6 million bbl last week to 239.3 million bbl. Distillate fuel balances fell by 3.1 million bbl to 114.7 million bbl. Jet fuel stocks fell 600,000 bbl to 43.3 million bbl.