Brent crude oil futures crossed the $100-a-barrel mark on Thursday morning after Iran attacked two oil tankers in Iraq waters.
At 9.23 am on Thursday, May Brent oil futures were at $100.31, up by 9.06 per cent, and April crude oil futures on West Texas Intermediate were at $94.35, up by 8.14 per cent. March crude oil futures were trading at ₹8,736 on Multi Commodity Exchange of India (MCX) during the initial hour of trading on Thursday against the previous close of ₹8107, up by 7.76 per cent, and April futures were trading at ₹8680 against the previous close of ₹8035, up by 8.03 per cent.
A Reuters report said that two foreign tankers carrying Iraqi fuel oil were hit by unidentified attackers in Iraq’s territorial waters, causing them to catch fire.
Oil rally despite massive reserve release
In their Commodities Feed for Tuesday, Warren Patterson, Head of Commodities Strategy of ING Think, and Ewa Manthey, Commodities Strategist, said the oil market resumed its upward rally on Wednesday, with ICE Brent settling 4.8 per cent higher on the day. This strength has continued into early morning trading on Thursday, with Brent moving close to the $100-a-barrel level. The increase comes despite the International Energy Agency (IEA) announcing a coordinated emergency release of up to 400 million barrels. It’s a record amount, eclipsing the 182-million-barrel emergency release from 2022.
Hormuz disruption keeps supply fears alive
On the question of why the market is rallying despite this large release, they said there are no signs of de-escalation in the Persian Gulf, so there is no end in sight to the disruptions to oil flows through the Strait of Hormuz.
Concerns over pace of oil release
Regarding the IEA-coordinated release, they said there are concerns about the speed at which this oil will reach the market and whether it will be enough to tie up the market until we see oil flowing through the Strait of Hormuz again. As part of the coordinated action, the United States will start releasing 172 million barrels from its strategic petroleum reserve from next week. This will take approximately 120 days to complete. This works out to a US release of around 1.4 million barrels a day. “If you assume a similar timeline for other countries, that works out to 3.3 million barrels a day – far short of the supply losses we are seeing from the Persian Gulf,” they said.
The only way to see oil prices trade lower on a sustained basis is by getting oil flowing through the Strait of Hormuz. Failing to do so means that the market highs are still ahead of us, they said.
US crude inventories rise latest week
The latest data by the US Energy Information Administration (EIA) showed an increase in crude oil inventories for the week ending March 6. According to EIA, US commercial crude oil inventories increased by 3.8 million barrels for the week ending March 6.
Total motor gasoline inventories decreased by 3.7 million barrels from last week, and distillate fuel inventories decreased by 1.3 million barrels for the week ending March 6.
Total products supplied in the US over the last four-week period averaged 21 million barrels a day, up by 1.9 per cent from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 8.8 million barrels a day, and distillate fuel product supplied averaged 4.1 million barrels a day over the past four weeks.
Natural gas futures also move higher
March natural gas futures were trading at ₹302.50 on MCX during the initial hour of trading on Thursday against the previous close of ₹296.20, up by 2.13 per cent.