June WTI crude oil (CLM26) today is up +2.55 (+2.84%), and June RBOB gasoline (RBM26) is up +0.0882 (+2.82%). Crude oil and gasoline prices are sharply higher today, with gasoline posting a 2-week high. Energy prices are rallying today as the cancellation of peace talks between the US and Iran keeps the Strait of Hormuz closed and disrupts global oil supplies. Today’s weekly EIA report was mixed for crude oil and products.
Gains in crude oil accelerated today amid concerns about an escalation of the US-Iran war after Iran seized two ships today in the Strait of Hormuz for “endangering maritime security,” and the UK Navy said Islamic Revolutionary Guard Corps gunboats fired upon two other cargo ships.
Persian Gulf oil producers have been forced to cut production by roughly 6% due to the closure of the Strait of Hormuz as local storage facilities reach capacity. Last Monday, the US began a blockade of all vessels passing through the Strait of Hormuz that call at Iranian ports or are headed there. President Trump said last Friday that the US naval blockade in the strait “will remain in full force” until a deal is fully agreed. The blockade could exacerbate global oil and fuel shortages, as about a fifth of the world’s oil and liquefied natural gas transits through the strait. Iran has been able to export crude during the war, as it exported about 1.7 million bpd in March.
The International Energy Agency (IEA) said last Monday that about 13 million bpd of global oil supply has been shuttered by the Iran war and the closure of the Strait of Hormuz. The IEA also said that more than 80 energy facilities have been damaged during the conflict, and a recovery could take as long as two years.
In a bearish factor for crude, OPEC+ on April 5 said it will boost its crude output by 206,000 bpd in May, although that production hike now seems unlikely given that Middle East producers are being forced to cut production due to the Middle East war. OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has another 827,000 bpd left to restore. OPEC’s March crude production fell by -7.56 million bpd to a 35-year low of 22.05 million bpd.
Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +11% w/w to 115.89 million bbl in the week ended April 17.
The most recent US-brokered meeting in Geneva to end the war between Russia and Ukraine ended early as Ukrainian President Zelenskiy accused Russia of dragging out the war. Russia has said the “territorial issue” remains unresolved with Ukraine, and there’s “no hope of achieving a long-term settlement” to the war until Russia’s demand for territory in Ukraine is accepted. The outlook for the Russia-Ukraine war to continue will keep restrictions on Russian crude in place and is bullish for oil prices.
Ukrainian drone and missile attacks have targeted at least 28 Russian refineries over the past nine months, limiting Russia’s crude oil export capabilities and reducing global oil supplies. Also, since the end of November, Ukraine has ramped up attacks on Russian tankers, with at least six tankers attacked by drones and missiles in the Baltic Sea. In addition, new US and EU sanctions on Russian oil companies, infrastructure, and tankers have curbed Russian oil exports.
Today’s weekly EIA report was mixed for crude oil and products. On the bullish side, EIA gasoline supplies fell by -4.57 million bbl, a larger draw than expectations of -2.0 million bbl. Also, EIA distillate stockpiles fell by -3.4 million bbl, a larger draw than expectations of -1.8 million bbl. On the negative side, EIA crude inventories unexpectedly rose +1.93 million bbl to a 2.75-year high versus expectations of a -2.0 million bbl draw. Also, crude supplies at Cushing, the delivery point of WTI futures, rose by +806,000 bbl.
Today’s EIA report showed that (1) US crude oil inventories as of April 17 were +2.8% above the seasonal 5-year average, (2) gasoline inventories were -0.1% below the seasonal 5-year average, and (3) distillate inventories were -7.5% below the 5-year seasonal average. US crude oil production in the week ending April 17 fell -0.1% w/w to 13.585 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 April 17 fell by -1 to 410 rigs, just 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
