May WTI crude oil (CLK26) on Monday closed up +2.51 (+2.60%), and May RBOB gasoline (RBK26) closed up +0.0787 (+2.59%). Crude oil and gasoline prices settled sharply higher on Monday after peace talks between the US and Iran broke down over the weekend and President Trump imposed a blockade in the Strait of Hormuz.
Crude prices rallied on Monday when President Trump said the US began a full naval blockade of the Strait of Hormuz and threatened to attack any Iranian vessels that approach US ships in the strait. The blockade could exacerbate global oil and fuel shortages. Iran said it would target all ports in the Persian Gulf if its own shipping hubs were threatened.
However, crude prices gave up more than half of their advance on Monday when President Trump said that Iran still wanted to make a deal and reached out to the US over peace negotiations as the US began a naval blockade of the Strait of Hormuz.
The International Energy Agency (IEA) said 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.
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. The US vowed to blockade all vessels passing through the Strait of Hormuz today that call at Iranian ports or are headed there. 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.
Crude prices also have support after Saudi Arabia’s state producer, Saudi Aramco, raised the price of its main oil grade to Asia last week by $17 a barrel for May delivery, the biggest jump on record.
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.
