WTI falls near $67 as Saudi crude flows return, pulling rack prices down

Crude dropped to near $67 a barrel for WTI and $70 for Brent, the lowest since the week before the Iran war began on Feb. 28, after Saudi Arabia restarted shipments from its Ras Tanura terminal and Persian Gulf flows kept recovering. For jobbers, that means rack is coming down and the supply tightness of the last few weeks is starting to loosen.

Ras Tanura restart

Saudi Arabia loaded crude at almost 90% of its previous rate after restarting late last week, according to vessel-tracking data compiled by Bloomberg. The Strait of Hormuz is reopening faster than the market expected. Morgan Stanley analysts wrote this week that even with the strait recovering, "high US exports and low Chinese imports remain in place," the two things keeping a lid on price. Barrels that were bid up during the shooting are now finding their way back to buyers, and the surplus talk that vanished a month ago is back.

What it does to rack

Wholesale follows crude with a lag, so rack has been resetting lower this week across most markets. Good news if you're buying day to day. Less good if you loaded a terminal or your own tanks at war-peak numbers and now have to move that product against a falling rack. Marketers who ran lean through the disruption and didn't chase inventory are in the better spot right now. Anyone who topped off at the highs is watching margin bleed as replacement cost drops under them.

The allocation pressure that had some suppliers capping unbranded pulls should ease as loadings normalize, though branded contract holders were never the ones getting shorted. Watch your supplier's postings rather than the flat screen, since rack timing varies terminal to terminal.

The risk that didn't leave

The floor under this isn't solid. Iran said it will not meet with U.S. envoys to negotiate, and that came after strikes on a couple of ships in Hormuz. Flows are recovering, but the thing that stopped them in the first place is still live. Crude could firm again quickly if shipping through the strait gets hit, so the softer rack you're seeing now may not hold.

What to watch

Whether Saudi loadings climb from 90% back toward full rate, and how fast. Whether the Iran talks stay dead or restart. Chinese import demand, which Morgan Stanley flags as half the reason prices are soft. And your own inventory position: if you're long product bought high, a returning-supply market is the one that costs you. Keep buys short until the strait picture settles.