DTN Oil Update

Karim Bastati
DTN Analyst

VIENNA (DTN) -- Oil futures slid to the lowest in more than three months Tuesday morning, extending the decline from the previous trading session on growing signs that shut-in Middle Eastern oil flows may soon return.

By 8:30 a.m. EDT, ICE Brent for August delivery was down $3.00 to trade near $80.17 bbl, and NYMEX WTI for July delivery fell $3.09 to $77.66 bbl.

Downstream, NYMEX ULSD futures for July delivery slid $0.1030 to $3.1635 gallon, and front-month NYMEX RBOB futures retreated $0.0487 to $2.8985 gallon.

The U.S. Dollar Index remained little changed, up 0.035 points to 99.410 against a basket of foreign currencies.

U.S. and Iranian officials are set to sign an interim deal in Switzerland on Friday, which would reportedly end the Iranian blockade of the Strait of Hormuz. Tehran on Tuesday confirmed that the U.S. blockade of Iranian ports is being lifted, and vessel tracking data showed several Iranian oil tankers moving toward the Gulf of Oman.

Hundreds of laden oil tankers are idling in the Persian Gulf, but few have so far attempted to traverse the chokepoint following Sunday's peace deal announcement as shippers were waiting for more clarity about navigational safety, including the clearing of Iranian sea mines. A wave of crude oil ready to flow once a deal is signed could soon provide much needed respite to a supply-starved market.

While some analysts expect oil supply to return to pre-war levels by the end of July, others are more cautious given the extent and duration of the supply disruption. Damaged energy infrastructure, shut-in oil fields and logistical hurdles can pump the brakes on the expected supply surge and drag out the return of oil output for months.

Demand destruction caused by the largest oil supply disruption in history is also weighing on price expectations. The lack of crude deliveries and high prices has caused a global refining trough, and inflationary pressures stymying growth may render some of this lost demand permanent. Chinese customs data showed the dearth of imports and refining extending into May as demand remained at the lowest in nearly a decade. Spot prices have also recently indicated some demand weakness, with the premium of physical barrels over futures returning to pre-war levels in many markets.