Petroleum futures saw a sharp drop during midday on Monday, following a brief surge in crude oil benchmarks to their highest levels in two months.
Drone Strike Raises Tensions
The surge occurred on Sunday night after a drone strike in Jordan resulted in the deaths of three U.S. troops and left dozens wounded. The U.S. military hinted at potential strikes against militias in Iraq and Syria, and some Republican lawmakers even urged military action on Iranian soil.
Brief Surge in Prices
Sunday night’s post-drone action pushed March West Texas Intermediate to a high of $79.29 per barrel, reflecting a gain of $1.18 per barrel. Similarly, March Brent reached as high as $84.80 per barrel, with a gain of $1.25 per barrel.
These numbers marked the highest levels since November. However, aggressive selling emerged on Monday morning, resulting in a decline in prices. By midday, March WTI dropped $1.18 per barrel to $76.82, and March Brent fell $1.13 per barrel to $82.42.
Traders Remain Cautious
February typically sees an increase in crude oil prices, but traders have shown reluctance to chase higher prices unless there is clear evidence of supply disruption. While drone strikes on export terminals in Russia could potentially inspire crude buying, news on that front has been quiet at the start of the week.
Diesel Supply Disrupted by Drone-Inspired Damage
The recent damage caused by drones has had a significant impact on diesel supply from Russia, resulting in a loss of export barrels. As a result, diesel trading has become more active. While ULSD futures have experienced a drop, with February contracts falling by 1.58 cents per gallon to $2.8276/gal, this decline reflects a wider distillate crack. In comparison, Gulf Coast diesel commands a strong crack of $36.79 per barrel against WTI futures.
Gasoline Demand Declines as Refinery Output is Affected
The winter weather and first-quarter turnarounds have constrained refinery output, leading to a decrease in gasoline production. The estimated demand for gasoline stands at approximately 8 million b/d. Consequently, February RBOB futures have fallen by 5.39 cents per gallon to $2.2402/gal, with smaller losses observed in other winter and spring months. Cash markets have generally experienced a decline of 4-5 cents per gallon, except for Southern California, where prices rose by over 4 cents per gallon.
Retail Gasoline Prices Stabilize Nationally
Retail gasoline prices have settled at an average of around $3.10 per gallon nationwide. This represents a disinflation of approximately 40 cents per gallon compared to the prices in 2023. The surge in pump prices experienced in February and March 2023 has contributed to this difference, which may further expand to 50 cents per gallon or even more.
Reporting: Tom Kloza, Editing: Michael Kelly