DTN Oil Update

Karim Bastati
DTN Analyst

VIENNA (DTN) -- Oil futures slumped as much as 4% Friday morning as more signs of a diplomatic resolution to the U.S.-Israeli war on Iran emerged, raising hopes of supply disruptions easing in the coming weeks.

Near 8:00 a.m. EDT, NYMEX WTI crude for May delivery was down $3.89, or 4.1%, to $90.8 bbl. ICE Brent for June slumped $3.49, or 3.5%, to $95.9 bbl.

Downstream, NYMEX ULSD futures for May delivery fell $0.2222 to $3.6104 gallon, while front-month NYMEX RBOB futures retreated $0.07 to $3.0937 gallon.

The U.S. Dollar Index softened by 0.105 points to 97.92 against a basket of foreign currencies.

Energy futures slid in reaction to U.S. President Donald Trump's announcement late Thursday, April 16, of a 10-day ceasefire starting immediately between Israel and Hezbollah. The cessation of Israeli attacks on Lebanon was a key demand of Tehran and raises the odds of a permanent ceasefire between the warring parties. The President also told reporters on Thursday that the U.S. and Iran were close to a deal and claimed that Tehran had made key concessions pertaining to its nuclear ambitions and to the reopening of the Strait of Hormuz.

The Iranian government has not yet commented on these claims. Tehran has previously stated that it could respond to the ongoing U.S. blockade of Iranian maritime trade, in place since Monday, with a full blockade of all ships traversing the waterway and extended this threat to Bab-el-Mandeb, the naval chokepoint between the Arabian Peninsula and the Horn of Africa in which commercial ships have for a two-year period experienced attacks from Iran-aligned Houthi militias.

A reopening of the Strait of Hormuz could see most oil exports from the Persian Gulf return within a few weeks, which have been cut off the global market for the last 47 days. Given the prolonged downtime of shut-in wells and the scale of energy infrastructure destruction, oil production will likely take months and gas production years to be restored to antebellum levels. Part of that gap can, however, be bridged by drawing from regional crude inventories, filled to the brim during the first weeks of the blockade.