Crude oil and refined product futures saw a significant rally on Wednesday, with oil prices increasing by just over $2 and refined products experiencing an increase of more than 5 cents.
Tensions in the Middle East
The market’s price action mirrored that of Tuesday, but unlike the previous day, Wednesday showed some resilience as the market managed to hold its gains. This is notable considering the escalating tensions in the Middle East, which have already caused protests and forced the shutdown of Libya’s Sharara oil field, one of the largest fields in the country.
Heightened Tensions and Tragic Events
The situation in the region grew more tense following the assassination of a senior Hamas leader on Tuesday. In addition, this morning, a series of blasts at a memorial for Iranian Major General Qassem Soleimani resulted in the death of over 100 people. These events have further increased tensions in the area.
Impact on Oil Markets
These developments have prompted buyers to enter the oil markets, driving up the prices. The price of February West Texas Intermediate reached $72.90 this morning, falling slightly short of Tuesday’s high of $73.64. Similarly, Brent oil reached a peak of $78.41 earlier today.
By midday, front-month WTI was trading at $72.42 per barrel, marking a $2.03 increase, while March Brent stood at $77.83 per barrel, showing a $1.94 rise.
Refined Product Futures
In addition to crude oil, refined product futures also saw a significant increase. RBOB and ULSD prices outpaced the rise in crude oil.
RBOB futures experienced a notable increase of 5.71 cents, reaching $2.152 per gallon. However, this still remained about 1.25 cents below the earlier highs. Similar to WTI, RBOB was not able to surpass the highs observed on Tuesday.
Market Update: Cash Markets and Diesel Prices
Cash markets are generally on the rise, following the upward trend of the futures contract. However, some markets, particularly Group 3, are experiencing widened discounts, which is keeping price growth in check. In contrast, the San Francisco market is observing a dip in prices, notably by about 2.5 cents, as premiums have narrowed.
The diesel market, on the other hand, is receiving a boost of around 7.5 cents due to anticipated winter weather in the Northeast over the weekend. Although the forecast for most major cities remains uncertain, areas from Washington, D.C. to Boston have seen minimal snowfall over the past two years.
Midday trading has shown that front-month diesel futures have surged by approximately 7.25 cents, reaching $2.5984 per gallon. At its peak, the February ULSD contract even saw an increase of nearly 10 cents. Concurrently, Group 3 diesel is also experiencing slight widens in discounts. According to market sources, inventories in the Group are at their highest levels for this time of year since 2018.