Oil Hovers Near Two Week Lows as Diesel Margins Smash Record

Oil prices remained near their lowest levels in more than two weeks on Wednesday as improving crude supplies from the Gulf weighed on the market. Diesel refining margins, however, surged to a record as traders confronted the possibility of restrictions on US diesel exports.

Brent crude futures rose $1.15, or 1.16%, to $100.40 a barrel by 1143 GMT. West Texas Intermediate futures advanced 35 cents, or 0.42%, to $90.90.

The Brent benchmark had fallen to $97.36 in the previous session, its lowest level since September 8. WTI touched its lowest point since September 1 earlier on Wednesday.

European low sulphur gasoil climbed to a record premium of about $95 a barrel over Brent crude futures. The increase followed US President Donald Trump’s statement that he supported the idea of banning diesel exports to lower fuel prices, which have reached record highs amid a global supply shortage.

Europe has relied heavily on diesel and jet fuel shipments from the United States since the war involving the US, Israel and Iran disrupted supplies from the Middle East. That dependence has heightened concerns about the international consequences of any US export restrictions.

“Brent is being underpinned by surging gasoil prices amid renewed worries the US may introduce a diesel export ban,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Analysts and market observers have warned that an export ban would do little to reduce elevated energy prices. They also cautioned that such a measure could deepen supply problems and economic disruption around the world.

Crude prices have faced pressure this week from rising Gulf supplies and expectations that diplomatic discussions could help stop hostilities in the Middle East. Those developments have strengthened the market’s outlook for available barrels.

Trump warned on Tuesday that he could “annihilate” Iran. At the same time, he said his envoys had conducted productive talks with mediators of Iran about ending the war.

“The only news that is worth focusing on from a lower price point is the reopening of the East-West Saudi pipeline,” Hansen added.

Saudi Arabia resumed operations on its East-West Pipeline to the Red Sea on Tuesday, according to three sources briefed on the matter. Drone attacks blamed by Saudi Arabia on Iraqi militia had forced the kingdom to close the pipeline on September 11.

That shutdown halted crude loadings at Yanbu port. On Tuesday, Saudi Arabia offered additional barrels to Asian refiners for collection from locations outside the Strait of Hormuz.

Iraq is also increasing its oil exports, according to the country’s oil minister. He said on Tuesday that Iraq was exporting more than 3 million barrels per day and expected to raise exports through Turkey to more than 600,000 barrels per day.

The outlook for supply received further support from comments by a senior Iranian official. The official told Reuters that the Strait of Hormuz could reopen within seven days if the United States reduced military pressure and lifted its blockade on Iranian ports.

US inventory data added to the downward pressure on oil prices. Industry figures showed crude inventories increased by 1.8 million barrels during the week through September 18, while analysts surveyed by Reuters had expected stocks to decline.

Official weekly inventory data from the US Energy Information Administration was scheduled for release at 10:30 a.m. ET, or 1430 GMT. The figures were set to provide another measure of domestic crude supply conditions.

The opposing signals left the oil market caught between expanding crude availability and an increasingly strained diesel market. Gulf supply improvements pushed against crude benchmarks, while record gasoil margins reflected concern about fuel shortages and possible US export limits.