July WTI crude oil (CLN26) on Wednesday closed up +1.83 (+2.07%), and July RBOB gasoline (RBN26) closed up +0.0888 (+2.94%).
Crude oil and gasoline prices settled sharply higher on Wednesday after the US and Iran exchanged strikes overnight, which could derail the peace process and keep the Strait of Hormuz closed. Also, President Trump said that Iran has taken too long to make a deal and that they will now have to “pay the price,” fueling concerns that the US may escalate military attacks on Iran. Crude prices maintained their gains on a bullish EIA inventory report.
More News from Barchart
Crude prices raced to their highs on Wednesday when President Trump pledged to strike Iran again after accusing the country of delaying talks on an interim peace deal. Mr. Trump declined to say what targets US forces would hit but said: “We hit them hard yesterday, and we’re going to hit them hard again today.”
However, crude prices fell from their best level on Wednesday afternoon when President Trump said the US military had supported the passage of “more than 200 commercial ships” through the Strait of Hormuz, resulting in “more than 100 million barrels of oil” making it to market.
Increased hostilities in the Middle East are keeping the Strait of Hormuz closed and are bullish for crude oil prices. On Wednesday, the US said it had completed an operation that saw fighter jets strike Iranian air defenses, ground control stations, and radar sites near the Strait of Hormuz in retaliation for Iran shooting down a US Apache helicopter. In response, Iran launched missiles at four US military targets and fired drones at the main US naval base in the Middle East, located in Bahrain, and struck Ali Al Salem air base in Kuwait.
Weakness in Chinese demand is bearish for crude oil prices. China’s May crude imports fell to about 7.8 million bpd, the lowest in more than eight years. China is the world’s largest crude importer.
The outlook for higher US crude output is negative for oil prices. The Department of Energy (DOE) on Tuesday raised its US 2026 crude production estimate to 13.72 million bpd from a May estimate of 13.65 million bpd.
Crude prices have support from the continued Ukrainian drone attacks on Russian oil infrastructure. Last Monday, Bloomberg reported that Russia banned jet fuel exports after Ukraine’s attacks on Russian oil refineries reached a record high in May. Russia’s refinery runs in May fell -13% y/y to 4.58 million bpd, the lowest since October 2009, according to data from Bloomberg. US and EU sanctions on Russian oil companies, infrastructure, and tankers have also curbed Russian oil exports.
The International Energy Agency (IEA) said in a monthly report released in May that global oil inventories declined at about 4 million bpd in March and April, and that the market will remain “severely undersupplied” until October, even if the conflict ends soon. Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by about 14.5 million bpd, and that the current disruption has drawn down nearly 500 million bbl from global crude stockpiles, which could hit a billion bbl by June.
As a bearish factor for crude, OPEC delegates said on May 14 that the cartel aims to continue a series of oil quota increases over the next few months, completing the return of halted oil production by the end of September. The group already formally agreed to restore about two-thirds of the 1.65 million bpd supply cutback it made back in 2023 and said it plans to raise output targets further and to revive the final portion in three more monthly stages. On May 3, OPEC+ said it will boost its crude output by 188,000 bpd in June after raising production by 206,000 bpd in May, although any production hike now seems unlikely given that Middle East producers are being forced to cut production due to the Middle East war. OPEC’s May crude production fell by -3.36 million bpd to a 40-year low of 16.33 million bpd.
Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +1.2% w/w to 86.59 million bbl in the week ended June 5.
Wednesday’s weekly EIA report is bullish for crude oil and products. EIA crude inventories fell by -7.23 million bbl, a larger draw than expectations of -2.2 million bbl. Also, gasoline supplies rose by +186,000 bbl, a smaller build than expectations of +1.0 million bbl. In addition, EIA distillate stockpiles fell by -200,000 bbl versus expectations of a +171,000 bbl build. Finally, crude supplies at Cushing, the delivery point of WTI futures, fell by -801,000 bbl.
Wednesday’s EIA report showed that (1) US crude oil inventories as of June 5 were -5.3% below the seasonal 5-year average, (2) gasoline inventories were -5.9% below the seasonal 5-year average, and (3) distillate inventories were -13.9% below the 5-year seasonal average. US crude oil production in the week ending June 5 rose +0.7% w/w to 13.799 million bpd, mildly below the record high of 13.862 million bpd posted in the week of November 7.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ended June 5 rose by +2 to an 11-month high of 431 rigs, well above the 4.25-year low of 406 rigs posted in the week ended December 19. Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
