Oil prices fall back after a short-lived surge in early trading
The price of oil was essentially flat between us on Monday morning after opening our time on Sunday evening after the Trump administration’s military strike to Iran.
Even the initial rise in prices was considered somewhat overwhelming compared to more apocalyptic predictions that were heard before the attack.
However, from the trucking industry’s perspective, the most attention was the continued strength of diesel compared to crude oil and petrol.
Around 7:05pm on EDT, about an hour after trading began on various exchanges, global crude oil benchmark Brent rose to $1.88/barrel to $78.89/b, a profit of 2.44%. The US benchmark crude grade, West Texas Intermediate, rose 2.52% to $75.70/b, earnings of $1.86/b. RBOB petrol is a semi finished gasoline product that serves as a trading platform for finished petrol, up 2.19% to $2.3806/gallon, an increase of 5.11 CTS/g. (RBOB is essentially gasoline that does not add ethanol).
However, the biggest increase on Sunday evening was ultra-low sulfur diesel (ULSD). A rise of 3.67% to $2.6352/g, an increase of 9.34 cts/g.
In a surprising reversal, by 9:30am, oil prices had levelled off from the CME Commodity Exchange’s Friday settlement.
Just before 9:30, ULSD fell by about 25 basis points, or .09%. WTI increased by .08%, while Brent was below 0.2%.
There is then news that two oil tankers that initially made a U-turn to avoid passing through the straits, reversed their decision and helped the market somehow calm anyway.
In an interview with Bloomberg Television, in a Bloomberg report by Bloomberg, Bob McNally, founder of Rapidun Energy Advisors LLC and a longtime Washington Energy Officer, said that previous profits in the market had already shifted prices to levels that reflected the potential for disruption.
“We’ve increased by $10 a barrel since the war began. I think there’s a little more risk in the market right now,” he said. “Traders are holding their breath and are waiting to see if Israel or Iran will expand this conflict beyond military and political targets to traded energy.
If ULSD settles at that level on Monday afternoon in the US, it will be the best price since the $2.6513/g settlement on April 16, 2024.
In the weeks leading up to US attacks at Iran’s nuclear facilities, the most bullish scenario for the oil market is the fate of the Strait of Hormuz, a gateway to the Persian Gulf, and a route to oil exports from many countries, including Saudi Arabia, Kuwait, Iraq and Irakin.
a Reuters will report from 2023cited various sources, he said that around 20% of the world’s roughly 103 million b/d consumption passes through the Strait of Hormuz every day. In some countries there are alternative export routes through pipelines, but it is unknown how much an infrastructure that increases up to 100% of capacity can replace normal export levels through the straits.
The Strait of Hormuz is not an international waters. Part of it is Iranian territory. The other is the territory of Oman.
Although the Iranian parliament voted to close the Strait of Hormuz over the weekend, some news reports said it would be up to the country’s senior leaders to decide whether to implement such a radical step.
In an interview with Fox News Sunday, Secretary of State Marco Rubio called on China to discourage Iran from pursuing its policies. China is the largest customer of Iranian crude oil, and the supply line for this will come to China via the straits.
“I encourage Beijing’s Chinese government to call them about it because they rely heavily on the Straits of Hormuz for their oil,” Rubio said according to several reports in his interview.
Other analysts have been noted that closing the Strait of Hormuz would have a major impact on Iran’s exports and cut off the most important revenue streams.
Meanwhile, the rise in prices between crude oil and diesel is a relatively new phenomenon.
A direct comparison of Frontmans’ ULSD and Frontmans Brent spread over Sunday evening using a price of 7:05pm and translated to around 75 CTS/gallons. It is the widest spread since February 2024. A month ago it was about 56 CTS/g.
In a monthly report on the market for intermediate distillates containing diesel issued just before the actual attack, the Energy aspect petroleum market analysis research firm spelled out some of the reasons for the continued strength of diesel compared to crude oil.
“We see the escalation of the Israeli-Iraq conflict following last Friday’s attacks, which has led to an increased risk to the supply of intermediate distillates,” the EA said.
Regarding the two Middle Eastern fighters, the EA report stated that all Israeli refiners were “non-operated” after the Iranian attack. The country has relatively little refinement capacity, but it is a net exporter of diesel, EA said. In other words, it appears that they will need to request imports to replace lost capacity.
According to the EA, it produces about 700,000 b/d of diesel when it comes to Iran. He is also a net diesel exporter, but he says, “we may need to import in the event of supply disruptions.”
The EA report also includes a chart showing relatively strict levels of diesel inventory in Europe. (The numbers are millions of barrels).
Also, US stocks are well below the average for the second week of June for five and ten years, but demand for diesel has also declined, which has led to the volume of “days” (size of stocks measured as time to cover consumption) that have risen for a few weeks.
