DTN Oil Update

Karim Bastati
DTN Analyst

VIENNA (DTN) -- Oil prices edged lower Thursday morning, holding onto most of Wednesday's jump, which came on the back of escalating fighting in the Middle East, including the return of U.S. strikes on Iran.

By 08:50 a.m. EDT, ICE Brent for September delivery was down $0.52 to trade near $90.22 barrel (bbl) and NYMEX WTI for September delivery retreated $0.37 to $84.09 bbl.

Downstream, NYMEX ULSD futures for August delivery fell $0.1140 to $4.2561 gallon, and front-month RBOB futures slid $0.0518 to $3.3460 gallon. The U.S. Dollar Index softened by 0.234 points to 100.495 against a basket of foreign currencies.

An escalating and widening conflict in the Middle East supported prices. Early Wednesday, U.S. and Saudi Arabia launched a coordinated attack on Iran-aligned militias in Iraq which had earlier this week attacked Saudi oil infrastructure. This marked the first time since the start of the war five months ago that the kingdom officially and actively participated in military action.

Later that day, a drone of yet unknown origin struck an LNG tanker in the Red Sea, amplifying concerns over potential disruptions to Saudi oil flows bypassing the Strait of Hormuz blockade. Fighting around the Persian Gulf also ramped up with the U.S. military saying it had carried out dozens of strikes on targets inside Iran in retaliation for an Iranian attack on a U.S. base in Jordan, the first direct strikes on Iran since the 13-day U.S. bombing campaign was halted last Friday.

Trackable tanker traffic through the strait remained depressed on Wednesday. Meanwhile, in yet another blow to global oil supply, Kazakh oil loadings on Thursday had to again be halted after Ukrainian attacks on two tankers at Russia's main Black Sea port in Novorossiysk. This came just two days after operations resumed following a week-long suspension caused by drone attacks on several ships. The port is the main outlet for Russian crude exports from the Black Sea and houses CPC's main export terminal, with the latter alone supplying some 1.2 million to 1.4 million barrels per day (bpd) to the market.

A bullish U.S. oil inventory report also lent support Wednesday. The Energy Information Administration said commercial crude oil stocks last week fell by 7.2 million bbl to 404.5 million bbl, the seasonally lowest in more than a decade. Volumes stored in the Strategic Petroleum Reserve also continued to shrink, down 3.8 million bbl week-on-week to a 43-year low 307.7 million bbl.