A Week Unlike Any Other for Crude Prices

Oil – Fundamental Analysis

The price of WTI had settled last Friday at $90.90 which was already +$14/bl. higher than the Friday before the US & Israel began their attacks on Iran. With the conflict continuing last weekend, Iran continued to pummel its neighboring petro-states and threatened any ships attempting to pass through the Strait of Hormuz. So, when the oil markets re-opened Sunday night, a lot of pent-up anxiety turned into the immediate buying of April NYMEX WTI futures with the “Open” price hitting $98/bl. leading to a session High of $119.50/bl. Trading Monday during regular business hours would moderate some ending in a closing price of $94.80/bl. but only after a wild day that saw a Low of $81.20 which created a daily Hi/Lo range of $32. The week’s Low was $76.75/bl. on Tuesday in what was seen at the time as numerous positive signs that the Strait of Hormuz would re-open but that was not to be. Brent crude followed a similar pattern hitting a High of $119.50/bl. on Sunday evening and a Low of $81.15 on Tuesday. Both contracts settled higher week-on-week. The WTI/Brent spread fluctuated throughout the week but now sits at ($4.80). Neither the IEA-announced reserve release nor a gain in US crude inventories could halt the on-going rally.

The Strait of Hormuz remains the key issue impacting global oil prices as conflicting reports exist throughout the media coverage. President Trump said the US Navy would escort ships, if needed while Energy Secretary Wright stated that the US Navy was too involved in the actual conflict with Iran to perform such duties. Secretary of Defense Hegseth stated Friday that the Strait of Hormuz was “open” for ships wishing to pass unless Iran fires upon them which the latter has explicitly threatened to do. The US Central Command has requested that more ships be sent to the region for an escort service but don’t want to engage directly with Iran’s naval forces and IRGC boats. Any deployment could take at least a month to arrive. France has indicated a willingness to send its navy to assist tankers passage but there are no reports yet that those vessels have arrived on scene. Iran has attacked and damaged (3) ships so far while the US Navy destroyed Iranian mine-laying boats in the area.

The exact amount of oil and natural gas (LNG) stranded in the area of the Strait varies from source to source. There could be as little as 10 million bld. sitting idle up to as much as 20 million bld.  But the IEA and its member nations have pledged to release about 400 million bl. from its collective reserves. Member countries are obligated by policy to store an amount of oil equivalent to its import needs for a 90-day period. As one of the members, the US will release 170 million bl. in an “exchange” arrangement where buyers now will sell back to the US down-the-road to replenish the supplies. While the market initially reacted favorably to the announcement, the logistics will need to be worked out and the exact daily amount that can be delivered needs to be clarified. Furthermore, estimating the Strait of Hormuz oil interruption on the high end at 20 million bld., the IEA release would only cover (20) days if the volumes can be delivered at that same level.

The IEA is estimating that, in addition to the flow of oil out of the Persian Gulf, there has been an interruption of 8.0 million bld. of production. India struck a deal with the US to temporarily waive the sanctions on purchasing Russia oil to alleviate its supply shortages. And both India and China have reached out to Iran requesting safe passage of shipments of oil each has purchased in the region.

The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased +3.5 million bl. to a total of 439 bl. million and -3% below the 5-year average. The API forecasted -5.6 million bl. while market analyst foresaw a gain of +1.6 million bl. US refinery utilization was 90.8% up from 89.2% last week representing +330k bld. to 16.2 million bld. Gasoline demand spike +950k bld. to 9.2 million bld. which was believed to be consumers filling-up as prices rose. Total motor gasoline stocks decreased -3.7 million bl. to 250 million bl. and are now +4% above the 5-year average. Distillates were -1.35 million bl. at 119 million bl. and are now at

 -3% below the 5-year average. Inventory at the key Cushing, OK hub changed +115k million Bbl. to 26.6 million Bbl. or 31% of capacity. The SPR held at 415 million bbl. Imports of crude oil were +100k bpd. to 6.3 million Bbld. vs. 6.3 the prior week while exports were 3.4 million bpd. vs. 4.0 the prior week. Exports of petroleum products were 7.2 million bpd. last week vs. 7.0 the prior week. Total US oil production was 13.7 million bld. last week vs. 13.6 last year at this time. Total US active rigs were +1 to 551 vs. 592 last year with +4 oil, -2 in gas and -1 misc.

AAA’s average US retail gasoline prices continue to rise at the pump due to the war and were most recently reported at $3.63/gal., +$0.31/gal. vs. last week, +$0.69/gal. from last month and +$0.55/gal. more than a year ago.

Inflation for February increased +2.4% in line with market expectations. Personal income for January rose +0.4%, lower than the forecasted +0.5% while spending was +0.4%, above the forecasted +0.3%. Housing starts jumped +7.2% in January while the PCE, the Fed’s preferred measure of inflation, came in at 0.4% and +3.1% year-on-year. Durable goods sales for January were flat while analysts sought a +1.3% rise.  4Q5 consumer spending, which reflects holiday activity, was +2.0% vs. an expected +2.4%. The higher energy prices with no end in sight have hammered global economic markets. All (3) US stock indices are down again this week. The USD has strengthened but has not been able to put a cap on the buying of crude. Gold is down but still holding about the $5,000/oz. mark.