September WTI crude oil (CLU26) on Monday closed down -6.70 (-7.50%), and September RBOB gasoline (RBU26) closed down -0.0820 (-2.52%).
Crude oil and gasoline prices sank on Monday, with gasoline falling to a 1-week low. The easing of tensions in the Middle East weighed on energy prices Monday after the US and Iran held off on further attacks for a third day, and Iran signaled it would refrain from any retaliation as it held negotiations with Oman over the Strait of Hormuz. Losses in crude oil accelerated on Monday after President Trump said that the US paused Iran strikes to give peace talks a chance.
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However, tensions remain high in the Middle East as the US maintains its blockade of Iranian oil shipments in the Persian Gulf. Also, Houthi militants in Yemen claimed to have struck facilities linked to Saudi Aramco in the Red Sea port towns of Jizan and Yanbu on Saturday. Yanbu, the western end of the East-West pipeline, has become Saudi Arabia’s key crude export outlet since the Strait of Hormuz has been effectively shut off by the war. Jizan is home to a refinery and export terminal along the Red Sea.
Global crude oil supplies are tightening due to reduced flows through the Strait of Hormuz. The International Maritime Organization recently warned that it is too dangerous to cross the Strait of Hormuz at the moment, and visible transit through the strait has fallen sharply as Iran continues targeting tankers attempting to transit it.
Crude prices also have support as Ukraine intensifies drone attacks on Russian oil infrastructure. Russian crude production fell to 8.928 million bpd in June, the lowest in 2.5 years, according to monthly OPEC data. According to EA Analytics, Russian crude-processing rates will average 3.51 million bpd in July, the lowest in 24 years, amid damage to Russian energy infrastructure caused by drone and missile attacks from Ukraine. According to Bloomberg, Ukrainian forces have attacked Russian fuel-producing facilities more than 50 times this year, hitting at least 24 of Russia’s 34 largest refineries. As of the end of June, around 90% of Russian regions have imposed some form of fuel rationing or reported supply issues, as refining capacity has plunged following damage to facilities. The strikes have deepened a nationwide gasoline shortage, with several major refineries shut down and the government banning almost all gasoline, jet fuel and diesel exports. Russia is the world’s number two diesel exporter, after the US, according to Vortexa.
