Oil prices extended their upward trend on Wednesday, October 14, as strikes on vessels transiting the Strait of Hormuz intensified, according to a market update published by Sprague Energy. The United Kingdom Maritime Trade Operations (UKMTO) said a container ship and a tanker were hit by unknown projectiles within the strait. Iranian officials were cited as saying that Iran was deploying new tactics to target ships.
They also said Iran had begun using different offensive tactics about 10 days earlier to keep oil prices high and influence the U.S. midterm elections. Separately, the Houthis attacked an administrative building belonging to state-owned Saudi Aramco, causing a limited fire, and vowed to continue strikes on airports and oil facilities in Saudi Arabia. The oil market posted an overnight low of $93.97 before bouncing off that level.
Sprague Energy reported that prices retraced more than 62% of their move from a high of $101.69 to a low of $86.86, trading as high as $96.06 ahead of the close. The November WTI contract settled up 95 cents at $95.09, while the December Brent contract settled up 37 cents at $106.06. Product markets ended mixed: heating oil settled down 70 points at $4.9274, while the RBOB market settled up 94 points at $3.2595.
In early trading, as of 8:45 a.m. EDT, November WTI was at $95.32, up 21 cents, November RBOB was at $3.1798, down 7.97 cents, and November heating oil was at $4.7836, down 14.38 cents. Sprague Energy's technical analysis states that crude remains well supported by the continuing Houthi strikes against Saudi Arabia and by the new tactics Iran has reportedly deployed.
Resistance is seen at $96.06, $96.54, $96.78, $97.22, $98.01, $100.61 and $101.69. Support is seen at $93.97, $91.70, $89.61, $88.77, $87.96, $86.86, $85.92, $84.24, $82.47 and $82.17. In its monthly oil market report, the International Energy Agency (IEA) said constrained diesel supplies could persist well into next year.
Large counter-seasonal stock drawdowns, combined with restricted production ahead of peak winter demand, are behind the tightness. The IEA expects global refinery operations to recover towards the end of this year, which would begin to replenish stocks, but it said this recovery will be insufficient to offset the deficit accumulated this year. According to the agency, diesel export losses from the Middle East and Russia totalled 1.3 million barrels per day (bpd) combined in September.
The IEA forecasts that global oil demand will contract by 2.6 million bpd in 2026, with 25% of that decline coming from diesel. It also predicts that global oil supply will fall by 5.8 million bpd this year, before rising by 7.7 million bpd in 2027, which would return the global oil market to surplus. Bloomberg reported that rising costs of transporting oil by sea are becoming a growing risk to the availability of fuels such as diesel, which are already in short supply.
The IEA noted the prospect of “economic run cuts” at refineries outside the U.S. due to shipping costs, and said some plants in Europe are experiencing negative margins because of expensive shipping. The agency stated: “This opens the possibility of economic run cuts for a refining system operating at its upper limits, despite tight product markets and low product stocks.” In the United States, consumer prices accelerated in September amid higher gasoline costs. The Bureau of Labor Statistics said the Consumer Price Index rose 0.6% in September after increasing 0.4% in August.
Over the 12 months through September, the CPI advanced 3.7%, up from 3.4% in August. On the supply side, Russian Deputy Prime Minister Alexander Novak said OPEC+ plans to evaluate the oil production capacity of each participant by year-end. Sprague Energy noted that its market update is provided for information purposes only and is not investment advice.
Source: spragueenergy.com