Oil prices surged after apparent attacks on tankers in Gulf of Oman

Recap:  Oil prices surged in early trading on Thursday, rebounding from their lowest settlement in about five months after apparent attacks on two tankers in the Gulf of Oman increased tensions in that region, potentially posing a threat to global crude supplies. July WTI rose $2.31, or 4.5%, to a session high of $53.45 a barrel by 8:07 am EDT, while August Brent was up $2.67, or 4.4%, at $62.64 a barrel. As the bullish excitement wore off, gains were gradually pared and by 11:58 am EDT, July WTI slipped back below $52.00 before settling at $52.28 a barrel, up $1.14, or 2.33%. August Brent fell below $61.00 before settling at $61.31 a barrel, up $1.34, or 2.23%. July RBOB rose 2% to $1.7199 a gallon, while July heating oil rose 1.5% to $1.8066 a gallon.

Technical Analysis: Despite the past 2 trading days being quite tumultuous, our stance on this market has not changed. We continue to look for sideways trading, with WTI trending between $55.00 and $50.00. Below the $50.00 level, additional support can be found at $48.40 and $47.50, with resistance set at $53.27 and $55.00. 

Fundamental News:  Attacks on two oil tankers on Thursday in the Gulf of Oman left one ablaze and both adrift. The Front Altair was on fire in the waters between the Gulf Arab states and Iran after an explosion that a source blamed on magnetic mine.  A second Japanese-owned tanker was abandoned after being hit by a suspected torpedo.  The attacks were the second in a month near the Strait of Hormuz. 

Meanwhile, Iran’s government spokesman, Ali Rabei, voiced concern on Thursday over the suspected attacks on tankers and said Iran was ready for regional security cooperation to protect strategic waterways.  Separately, Iran’s Foreign Minister, Mohammad Javad Zarif, said two oil tankers attacks in the Gulf of Oman were “suspicious” and called for regional talks to avoid tensions. 

UN Secretary General, Antonio Guterres, condemned attacks on two oil tankers on Thursday in the Gulf of Oman, warning that the world cannot afford “a major confrontation in the Gulf region.”  Meanwhile, Arab League Secretary General, Ahmed Aboul Gheit, called on the UN Security Council to act against those responsible to maintain security in the Gulf region. 

Supreme Leader, Ayatollah Ali Khamenei, told Japanese Prime Minister, Shinzo Abe, that Iran will not repeat its “bitter experience” of negotiating with the US.  Iranian state media quoted Iran’s Supreme Leader as saying that “I do not see Trump as worthy of any message exchange, and I do not have any reply for him, now or in future.” 

In its monthly report, OPEC cut its forecast for growth in global oil demand due to escalating trade disputes and sees further downside risk.  OPEC estimated that world oil demand will increase by 1.14 million bpd this year, 70,000 bpd less than previously expected.  OPEC sees demand for its oil in 2019 averaging 30.52 million bpd, down 60,000 bpd from a previous forecast.  OPEC also stated that its output in May fell as US sanctions on Iran added to the impact of the supply-cutting agreement.  Production by all 14 OPEC members fell by 236,000 bpd to 29.88 million bpd.  OPEC said oil inventories in developed economies rose in April, suggesting a trend that could raise concern over the possible increase of an oil oversupply. It said OECD oil inventories increased by 25 million barrels on the month in April and stood at 7.6 million above the latest 5-year average.

Kazakh Energy Minister, Kanat Bozumbayev, said Kazakhstan supports extending a global output cut deal by OPEC and non-OPEC producers until the end of this year.  He said Kazakhstan had outperformed in terms of compliance with the pact so far this year by cutting output to 1.76 million bpd, well below its quota of 1.86 million bpd. 

Early Market Call – as of 8:30 AM EDT

WTI – July $52.13, down 16 cents

RBOB – July $1.7266, up 61 points

HO – July $1.8148, up 74 points

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