Oil Up as U.S., Iran Seize Vessels After Ditching Talks


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- Oil markets rose in choppy morning trading Wednesday (4/22) 
on tit-fort-tat vessel seizures on the Strait of Hormuz by Iran and the U.S., 
after an abandonment of peace talks took the Middle East conflict into a new 
phase of uncertainty.

   At least three container ships on the strait were hit by gunfire from Iran's 
Revolutionary Guards Navy, according to media reports Wednesday that said two 
of the vessels were seized for alleged maritime violations and transferred to 
Iranian shores.

   The Iranian actions came after the U.S. Navy said on Tuesday it intercepted 
and boarded a sanctioned laden Iranian tanker for the first time since the 
start of the conflict. Iranian oil was with few exceptions the one supply 
source still making it out of the Persian Gulf unimpeded before the U.S. 
imposed an embargo last week.

   Since the Middle East conflict began at end-February, Tehran had experienced 
a price-rally induced windfall in oil export revenues, which are a main source 
of funding for the Iranian state. The White House, prior to the imposition of 
its blockade on Iran, even temporarily suspended sanctions on Iranian oil to 
soften a global energy price spike that has begun to hurt U.S. consumers of 
gasoline and diesel.

   On Tuesday, U.S. President Donald Trump unilaterally extended the current 
ceasefire indefinitely hours before it was set to expire. The U.S. embargo on 
Iran-linked maritime trade, however, was kept in place.

   The lifting of the blockade is one of Tehran's key conditions for 
participating in further peace talks and for allowing free vessel traffic 
through the Strait of Hormuz. The seven-week long blockade of the chokepoint of 
a fifth of global petroleum liquid supply has led to the most severe oil supply 
disruption in history and sent physical crude and product prices soaring.

   By 8.45 a.m. ET, NYMEX WTI crude for June delivery was up $1.36, or 1.5%, to 
$91.03 bbl. ICE Brent crude for June rose $1.49, or 1.5%, to $99.97 bbl.

   Downstream, NYMEX ULSD futures for May delivery advanced $0.1378 to $3.8666 
gallon, while front-month NYMEX RBOB futures rose $0.0283 to $3.2381 gallon.

   The U.S. dollar index inched up 0.079 points to 98.30 against a basket of 
foreign currencies.

   Middle East tensions aside, Wednesday's market attention will be on U.S. oil 
inventory numbers due from the Energy Information Administration at 10:30 a.m. 
ET for the week ended April 17.

   The EIA last Wednesday reported a 13.1 million bbl draw to total petroleum 
stocks in the second week of April. The American Petroleum Institute saw this 
trend continue, reporting on late Tuesday across-the-board declines in domestic 
crude oil, gasoline and distillate fuel oil inventories.

   U.S. inventories have been declining amid high export demand as refiners and 
consumers in Europe and Asia were scrambling to fill the supply gap.

   Global inventories, which were at their highest in five years prior to the 
U.S.-Israeli war on Iran, have so far absorbed part of the supply shock. At 
least 500 million bbl of crude supply has been lost to date, leading to rapid 
stock drawdowns despite refiners being forced to throttle runs. The stock draws 
are likely to continue even once flows from the Middle East resume as it will 
take producers months to approach ante bellum production levels, with some 
supply likely permanently lost.




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