June WTI crude oil (CLM26) closed up +0.61 (+0.64%) on Friday, and June RBOB gasoline (RBM26) closed up +0.0707 (+2.05%). Crude oil and gasoline prices settled higher on Friday due to concerns about the sustainability of the ceasefire between the US and Iran amid fresh hostilities in the Strait of Hormuz. Markets are awaiting further updates after the US presented a proposal to Iran that would gradually reopen the Strait of Hormuz and lift the US blockade on Iranian ports. Iran is expected to respond via Pakistan in the coming days.
Crude prices rose on Friday following fresh hostilities between the US and Iran. Iran’s semi-official Tasnim news agency reported that Iran seized an oil tanker in the Strait of Hormuz for “attempting to disrupt oil exports and the interests of the Iranian nation.” Concurrently, US forces targeted missile and drone launch sites and other military assets in Iran, which were deemed responsible for attacking three US Navy destroyers transiting the Strait of Hormuz. Additionally, the US stated it “disabled” two unladen, Iranian-flagged oil tankers attempting to navigate the strait.
Crude prices are also climbing amidst reports that the US intends to restart operations as early as next week to guide commercial ships through the Strait of Hormuz with naval and air support. The Wall Street Journal reported on Thursday that Saudi Arabia and Kuwait have lifted restrictions on the US military’s use of their bases and airspace. This comes after Iran launched missiles and drones at the UAE in response to US efforts to open the strait. Previously, Saudi Arabia and Kuwait had blocked US military access to their bases and airspace after senior US officials downplayed Iranian attacks in the Persian Gulf, which were in reaction to the strait’s opening.
Energy prices remain underpinned as the US-Iran conflict keeps the Strait of Hormuz closed. This ongoing conflict is exacerbating global oil and fuel shortages, given that approximately one-fifth of the world’s oil and liquefied natural gas transits through the strait. Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by about 14.5 million barrels per day (bpd), and that the current disruption has drawn down nearly 500 million barrels (bbl) from global crude stockpiles, potentially reaching one billion bbl by June. Persian Gulf oil producers have been compelled to cut production by roughly 6% due to the Strait of Hormuz closure, as local storage facilities reach capacity. On Thursday, the International Energy Agency (IEA) reported that about 14 million bpd of global oil supply has been shut down by the Iran conflict and the closure of the Strait of Hormuz. The IEA also noted that over 80 energy facilities have been damaged during the conflict, with recovery potentially taking up to two years.
Last Tuesday, the United Arab Emirates (UAE) announced its departure from OPEC, effective May 1. The UAE’s decision to leave OPEC, where it stands as the third-largest producer, is considered bearish for crude prices, as it enables the UAE to increase production without being restricted by OPEC’s output quotas.
Adding a bearish factor for crude, OPEC+ stated on Sunday that it would boost its crude output by 188,000 bpd in June, following a 206,000 bpd increase in May. However, any production hike now appears unlikely given that Middle East producers are being forced to cut production due to the ongoing Middle East conflict. OPEC+ is attempting to restore the entirety of the 2.2 million bpd production cut implemented in early 2024, with 827,000 bpd still remaining to be restored. OPEC’s April crude production fell by -420,000 bpd, reaching a 35-year low of 20.55 million bpd.
Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days increased by +1.4% week-over-week, reaching 149.56 million bbl in the week ended May 1, marking a 4-month high.
The most recent US-brokered meeting in Geneva aimed at ending the conflict between Russia and Ukraine concluded prematurely, as Ukrainian President Zelenskiy accused Russia of prolonging the war. Russia has maintained that the “territorial issue” with Ukraine remains unresolved, stating there is “no hope of achieving a long-term settlement” until Russia’s demands for territory in Ukraine are accepted. The prospect of the Russia-Ukraine conflict continuing will maintain restrictions on Russian crude, which is bullish for oil prices.
Ukrainian drone and missile attacks have targeted at least 30 Russian refineries over the past ten months, thereby limiting Russia’s crude oil export capabilities and reducing global oil supplies. According to Bloomberg data, there were at least 21 Ukrainian strikes on Russia’s refineries, export terminals, and oil pipeline infrastructure in April, reducing Russia’s average refinery runs to 4.69 million bpd, the lowest in 16 years. Furthermore, US and EU sanctions on Russian oil companies, infrastructure, and tankers have further curbed Russian oil exports.
Wednesday’s EIA report indicated that as of May 1: (1) US crude oil inventories were +0.7% above the seasonal 5-year average, (2) gasoline inventories were -3.1% below the seasonal 5-year average, and (3) distillate inventories were -10.1% below the 5-year seasonal average. US crude oil production in the week ending May 1 decreased by -0.1% week-over-week to 13.573 million bpd, remaining slightly below the record high of 13.862 million bpd recorded in the week of November 7.
Baker Hughes reported on Friday that the number of active US oil rigs in the week ended May 8 increased by +2 to 410 rigs, just above the 4.25-year low of 406 rigs recorded in the week ended December 19. Over the past 2.5 years, the number of US oil rigs has sharply declined from its 5.5-year high of 627 rigs reported in December 2022.
On the date of publication, Rich Asplund did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data provided in this article are solely for informational purposes. For more information, please refer to the Barchart Disclosure Policy.
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