Oil Jumps on Renewed Conflict Fears
by Bloomberg | M. Gindis, W. Kubzansky
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas
Oil surged above $100 as renewed US-Iran tensions heightened concerns about Middle East supply disruptions.
Oil rose back over the $100 mark as investors weighed a potential return to active conflict between the US and Iran, a prospect that could further tighten crude oil and refined product supplies.
Brent for December rose 4.4% to settle above $102 a barrel. Futures on Thursday climbed to intraday highs after the Wall Street Journal reported that the US is sending a third aircraft carrier strike group to the Middle East.
That development comes after Wall Street analysts and traders said this week that crude flows from the Middle East are closing in on pre-war levels. Iran, however, appeared to have loaded no crude oil onto tankers in September, the latest indication of a US naval blockade’s effectiveness in severing the Islamic Republic’s access to energy markets.
Investors are wary that an increasingly cornered Iran could respond by intensifying the conflict.
“The increase in flows remains highly vulnerable to escalation,” said Hamad Hussain, a climate and commodities economist at Capital Economics. “I’d also describe the market as being structurally tight given the relatively low level of inventories after six months or so of drawdowns. That puts a floor under prices.”
Prices for Brent also adjusted higher following the expiration of the commodity’s November contract on Wednesday, as traders rolled over their positions and prices recalibrated to the dangers in the Middle East.
“We remain bullish,” said Al Salazar, head of oil and gas research at industry consultant Enverus. The deployment could indicate “a ground operation or could be helping to support the increased traffic through the strait. If it’s the latter, as a trader I would wonder how sustainable it is.”
Physical market indicators continue to flash constraints. Oil traders last week paid record premiums to secure immediate supply at the biggest US storage hub. In Europe, Dated Brent – a critical physical-market indicator – has also been trading at a wide premium to futures.
Crude prices were higher for a third month in September, as Washington and Tehran failed to make headway toward a lasting peace agreement that would fully reopen the Strait of Hormuz. Meanwhile, supply buffers have weakened following eight months of upheaval in the Middle East as governments have drawn on strategic crude stockpiles.
Flows have remained in focus as traders seek to assess how many barrels continue to exit Hormuz. Working out what Persian Gulf producers are sending to the market has been complicated by covert transits to avoid ongoing attacks on vessels, as well as strikes on Saudi Arabia’s East-West pipeline.
Goldman Sachs Group Inc. estimates about 23 million barrels a day of oil left the Middle East in the last week, both out of Hormuz and through other export routes like the Red Sea. That’s in line with last year’s average.
All eyes on fuel
Traders are also contending with uncertainty across fuel markets. Chinese exporters have canceled some oil-product cargoes slated for export in October, as Asia’s top consumer prioritizes domestic supply.
The diesel market has been roiled by both the turmoil in the Persian Gulf and Ukrainian attacks on Russian refineries. A potential ban on exports of the fuel is being considered in the US, which has become Europe’s top supplier.
The US has told Germany and France to release emergency diesel inventories to help ease global fuel prices or face a potential curb, Reuters reported, citing people familiar with the matter.
Months of on-again, off-again negotiations to end the war, launched by the US and Israel in February, have left oil futures prone to large swings, making it harder for traders to position for big moves.
What BloombergNEF analysts say:
“Gulf exports have recovered through escorted transits and alternative routes, but inventories have fallen by more than 500 million barrels since February, leaving a thinner buffer against further disruption.”
There have also been significant shortages in fuel markets that are bolstering crude demand as refineries try to churn out as many barrels as they can.
As Ukraine strikes Russian refineries, Moscow has further extended a ban on most diesel exports through October, adding to the tightening of the global market just as demand rises ahead of the Northern Hemisphere winter.
At the start of the Iran war, similar restrictions contributed to lower Chinese crude imports, said Giovanni Staunovo, a commodity analyst at UBS Group AG. That’s helping to keep the market in check as the world’s largest crude buyer backed away from the market.
“It remains unclear whether the latest measures will have the opposite effect and support higher crude imports, particularly given the recent drawdown in both Chinese crude and refined product inventories,” said Staunovo.
Oil Prices
- Brent for December settlement rose 4.4% to settle at $102.31 a barrel in New York.
- WTI for November delivery was up 2.7% to settle at $92.87 a barrel.
by Bloomberg | M. Gindis, W. Kubzansky
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas