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The energy sector (NYSERCA:XLE) easily outperformed other areas on Tuesday, +1.4%as WTI crude oil futures rose to a five-month high in the wake of escalating geopolitical tensions in the Middle East.
Iran has vowed to take revenge on Israel for an airstrike in Syria, which killed two top generals and five military advisers, and a Ukrainian drone attacked one of Russia's largest oil refineries.
“It's the headlines, not the fundamentals” that drove up WTI, says Robert Yawger of Mizuho, adding that the main energy impact of the conflict in the Middle East has been the increase in the cost of transportation due to Houthi attacks to shipping in the Red Sea, but the attack in Syria “is much closer to dragging Iranian production into the conflict.”
“Despite a flurry of diplomatic activity aimed at de-escalating the situation, there is definitely a chance that the Iranian response will not be as measured this time,” Yawger says.
Furthermore, “the likelihood that continued restrictions on exports of Russian products could further restrict US oil supplies has suddenly forced a recalculation of US (oil) balances for the remainder of this month and possibly beyond,” said Jim Ritterbusch, president of Ritterbusch and Associates.
First month Nymex (CL1:COM) crude oil for May delivery closed +1.7% at $85.15/bbl, and June Brent crude oil (CO1:COM) for the previous month also ended +1.7% at $88.92, the highest liquidation value for both benchmarks since October 27.
ETF: (NYSEARCA:USE), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (XLE), (XOP), (VDE), (OIH), (XES), (IEZ), (CRAK)
Oil refineries were the day's three biggest gainers on the S&P 500: Phillips 66 (PSX) +3.7%Petroleum Marathon (MPC) +3.4%Valero Energy (VLO) +2.6%and all three reached all-time intraday highs of $169.70, $211.54, and $177.32, respectively.
Also ranked in the day's top twelve in the S&P 500 rankings: Pioneer Natural Resources (PSX) +2.1%LyondellBasell (LYB) +2.1%Exxon Mobil (XOM) +1.9%EOG Resources (EOG) +1.9%ConocoPhillips (COP) +1.5%.
OPEC is expected to hold an online meeting on Wednesday of its Joint Ministerial Monitoring Committee, which is likely to maintain support for current policy that includes a continuation of the cartel's 2.2 million barrels per day production cuts. and its allies in the second quarter.
