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The energy sector (NYSEARCA:XLE) easily outperformed other areas on Tuesday, +1.4%while WTI crude oil futures rose to five-month highs on the back of rising geopolitical tensions in the Middle East.
Iran vowed revenge against Israel for airstrike Syria, which killed two generals and five military advisers, and a Ukrainian drone hit one of Russia’s largest oil refineries.
“It’s the headlines, not the fundamentals” that have lifted WTI, says Mizuho’s Robert Yawger, adding that the main impact of the Middle East conflict on energy has been rising transportation costs due of Houthi attacks on ships in the Red Sea, but the attack in Syria “comes much closer to dragging Iranian production into the conflict.”
“Despite a flurry of diplomatic activity aimed at calming the situation, there is certainly a possibility that the Iranian response this time will not be so measured,” Yawger says.
Furthermore, “the likelihood that continued export restrictions on Russian products could further restrict U.S. oil supplies has suddenly forced a recalculation of U.S. prices.” [oil] sales for the rest of the month and perhaps beyond,” said Jim Ritterbusch, president of Ritterbusch and Associates.
Nymex Front-Month Crude (CL1:COM) for May deliveries is closed +1.7% at $85.15/bbl, and first-month June Brent crude (CO1:COM) also finished +1.7% at $88.92, the highest liquidation value for both benchmarks since October 27.
ETFs: (NYSEARCA:USE), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (XLE), (XOP), (VDE), (OIH), (XES), (IEZ), (CRAK)
Oil refiners were the three biggest gainers in the S&P 500 Index: Phillips 66 (PSX) +3.7%Marathon Petroleum (MPC) +3.4%Valero Energia (VLO) +2.6%with all three hitting all-time record intraday highs of $169.70, $211.54 and $177.32 respectively.
Also ranking in the day’s top dozen in the S&P 500: Pioneer Natural Resources (PSX) +2.1%LyondellBasell (LYB) +2.1%ExxonMobil (XOM) +1.9%EOG Resources (EOG) +1.9%ConocoPhillips (COP) +1.5%.
OPEC is expected to hold an online meeting of its Joint Ministerial Monitoring Committee on Wednesday, which is likely to maintain support for current policy that includes the continuation of 2.2 million barrels per day in production cuts by the cartel and its allies in the second quarter.