Oil Slips on Deescalation Hopes as VLCCs Attempt Transit


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- Oil futures extended their decline Wednesday (5/20) morning 
on hopes of a detente in the U.S.-Iran war and of a sooner-than-expected 
resumption of flows from the Middle East.

   At 07:25am ET, ICE Brent for July delivery was down $2.61 to trade near 
$108.67 bbl, and NYMEX WTI for July delivery fell $2.11 to $102.04 bbl.

   Downstream, NYMEX ULSD futures for June delivery slipped $0.1137 to $4.0488 
gallon, and front-month NYMEX RBOB futures retreated $0.0772 to $3.6190 gallon. 

   The US dollar index edged higher by 0.045 points to 99.31 against a basket 
of foreign currencies.

   Tuesday's remarks from the White House weighed on oil futures. U.S. 
President Donald Trump said he for now prioritized diplomacy over renewed 
attacks, and U.S. Vice President JD Vance touted progress in peace talks, 
adding that "the Iranians want to make a deal."

   Prices also eased on reports suggesting that NATO was considering a plan to 
escort ships through the Strait of Hormuz should the Iranian blockade persist 
through June. This would mark a stark reversal from the defensive alliance's 
previous stance which limited involvement to post-conflict stabilization.

   Two Chinese-flagged and one South Korean VLCC, carrying a combined 6 million 
bbl of crude oil, attempted to transit the Strait of Hormuz early Wednesday 
before they stopped transmitting signals. If successful, it would mark the 
first time in more than three weeks that three laden VLCCs not linked to Iran 
made it through the blockade. Although largely symbolic given the scale of the 
supply disruption, a safe passage of the three ships may entice other shippers 
to attempt the same as Asian refiners grow increasingly desperate for crude oil 
barrels.

   Oil importers have increasingly turned to the U.S. to plug the supply gap, 
leading to record-high crude and refined product exports from the U.S. rapidly 
drawing down inventories. The American Petroleum Institute on Tuesday reported 
across-the-board declines in domestic gasoline, distillate fuel oil and crude 
oil stocks. The API estimated that commercial crude inventories shrank by 9.1 
million bbl in the week ending May 15. If confirmed by official U.S. Energy 
Information Administration data scheduled for 10:30am ET release Wednesday, the 
fourth consecutive weekly decline in commercial oil stocks would mark the 
largest since September.




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