Oil Prices Extend Decline on Iran Peace Deal Optimism


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- Crude oil futures slipped Thursday (5/7) morning, extending 
yesterday's sell-off triggered by signs the U.S. and Iran are closing in on a 
peace deal which would reopen the Strait of Hormuz.

   Near 08:00 am ET, ICE Brent for July delivery fell $3.17 to $98.10 bbl, and 
NYMEX WTI for June delivery slid $3.25 to $91.83 bbl.

   Downstream, NYMEX ULSD futures for June delivery declined by $0.1228 to 
$3.6628 gallon, and front-month NYMEX RBOB futures retreated $0.0748 to $3.3845 
gallon. 

   The US dollar index softened by 0.105 points to 97.77 against a basket of 
foreign currencies.

   Front-month Brent futures fell 8% yesterday, slumping by more than 10% 
intra-day, after reports indicated that the U.S. and Iran were on the verge of 
agreeing on a framework to permanently end hostilities and for both sides to 
lift their blockades of the Strait of Hormuz. Flows through the chokepoint, 
normally a fifth of global oil supply, have been at a trickle since the start 
of the U.S.-Israeli war on Iran and at a virtual standstill since the U.S. 
embargo on Iranian maritime trade.

   Prospects of an easing of the largest oil supply disruption in history were 
also heightened by U.S. President Donald Trump conveying optimism about an 
imminent deal and declaring victory in remarks made late Wednesday, echoing 
statements from the heads of both the State Department and Department of 
Defense earlier this week.

   The timing of the announcement and a lack of acknowledgment from Tehran, 
however, has tempered market optimism. Trump is set to meet Chinese President 
Xi Jinpin for a two-day summit in Beijing next week. China, the main consumer 
of Iranian oil, has been vocal in urging restraint from the warring parties and 
in calling for a reopening of the Strait of Hormuz. Beijing enacted a fuel 
export ban to ensure meeting domestic demand after refiners had to cut back 
operations amid a lack of crude deliveries from the Middle East. Not only are 
the country's refiners highly dependent on crude oil from the Persian Gulf, 
they also, just months after Venezuela, lost another vital oil supply source in 
Iran.

   U.S. inventories were also not shielded from the Hormuz supply disruption. 
The Energy Information Administration on Wednesday reported refined fuel 
exports soaring to a record high last week. Crude and product exports from the 
U.S. have surged over the past six weeks, putting additional strain on 
inventories. Distillate fuel stocks last week plummeted to a 20-year seasonal 
low, EIA data showed.

    




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