Oil Prices Surge Higher, Then Pull Back, On News Of Iranian Tanker Explosions

Oil prices were pulling back from their earlier highs as the U.S. trading day began Friday, lifted overnight by what was said to be a missile attack on an Iranian tanker off the coast of Saudi Arabia.

At its peak overnight Thursday and into Friday, WTI on CME was up 2.41% from Thursday's settlement to trade at $54.87/barrel. Brent was up 2.62% to $60.65/b and ultra low sulfur diesel (ULSD) tracked most of the move, rising 2.34% to $1.9657/gallon. The ULSD move was slightly surprising because when geopolitical incidents push oil prices higher, the impact tends to be on crude oil immediately, with products following. But ULSD matched a good amount of the move at its highs.

But by approximately 8:00 a.m. Eastern, prices had pulled back.That is the tendency with these incidents – there's a surge, there's a more rational analysis of the situation and prices tend to decline. But at 8:00 a.m., markets were still higher than Thursday's settlement. At 8:00 a.m., WTI's gain relative to the Thursday settlement was 1.53%, Brent was up 1.27% and ULSD was 1.32%.

Unlike the attacks on Saudi Arabia on September 14, which actually knocked supply off line leading to one of the biggest price surges in oil market history, the attack on the Iranian tanker does not impact supplies except the oil in one individual tanker. It is just another in a series of geopolitical incidents that the oil market has mostly shrugged off after initial bullish reactions. As noted energy analyst Helima Croft of RBC Capital Markets said in a Bloomberg article, "The market has been entirely too complacent given that we are one security incident away from a war."

The attack was reported by Iranian state media. News reports said the tanker, the Sabiti, was struck by missiles while in the Red Sea on its way to the Suez Canal, and was near the Saudi coastal city of Jeddah. It was reported to be fully-laden with crude oil, which is spilling into the Red Sea. The port authority in Jeddah confirmed an incident off its coast, according to Bloomberg.

With the increase from the Iranian tanker incident, WTI at approximately 8:00 a.m. was almost exactly where it was the Friday before the attacks on the Saudi oil fields. However, ULSD is trading higher. It was sitting at $1.9657/g compared to $1.8778/g on September 13. At approximately 8:00 a.m. today, it was sitting at $1.9657/g. It has moved consistently higher relative to crude for more than two weeks.

The relatively muted response to what years ago might have seemed a market nightmare scenario – an Iranian tanker struck by missiles off the coast of its fierce rival, Saudi Arabia – led Bloomberg Business Intelligence senior commodity analyst Mike McGlone to write, "Crude oil is in a bear market, as emphasized by its reaction to the latest violence-related supply disruption –- the Iran tanker attack. We think some combination of more powerful, sustained forces will be necessary to reverse the downward stair-step price pattern."

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