August WTI crude oil (CLQ25) Monday closed up +0.93 (+1.39%), and August RBOB gasoline (RBQ25) closed up +0.0336 (+1.59%).
Oil prices recovered from early losses on Monday and rallied to 2-week highs after Saudi Arabia raised prices for its main crude grade for buyers in Asia next month by more than expected. Crude prices added to their gains on elevated tensions in the Middle East after Houthi rebels attacked a ship sailing through the Red Sea, which could attract retaliatory US military strikes on the Houthi rebels. Crude prices initially moved lower Monday due to a stronger dollar and after OPEC+ raised its crude production level more than expected on Sunday.
Supporting crude oil prices are signs of stronger crude demand, as evidenced by Saudi Arabia's state-owned producer Aramco raising prices for its Arab Light crude for buyers in Asia next month by $1 a barrel, above expectations of a 65-cent-a-barrel increase.
Heightened tensions in the Middle East are supportive for crude prices after Yemen's Houthi rebels claimed responsibility for an attack on a ship sailing through the Red Sea on Sunday, their first strike on merchant shipping this year.
Concern about a global oil glut is negative for crude prices. On Sunday, OPEC+ agreed to raise its crude production by 548,000 barrels per day (bpd) beginning August 1, exceeding expectations of a 411,000 bpd increase. Saudi Arabia also stated that additional similar-sized increases in crude output could follow, which is viewed as a strategy to reduce oil prices and penalize overproducing OPEC+ members, such as Kazakhstan and Iraq. OPEC+ is boosting output to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production by September 2026. On May 31, OPEC+ agreed to a 411,000 bpd increase in crude production for July, following the same 411,000 bpd hike for June. June crude production rose +360,000 bpd to a 1.5-year high of 28.10 million bpd.
Oil prices continue to be undercut by tariff concerns ahead of the July 9 deadline when President Trump says he will implement reciprocal tariffs on imports from any countries that haven't yet reached a trade deal with the Trump administration.
An increase in crude oil held worldwide on tankers is bearish for oil prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days rose by +3.6% w/w to 79.55 million bbl in the week ended July 4.
Last Wednesday's EIA report showed that (1) US crude oil inventories as of June 27 were -9.3% below the seasonal 5-year average, (2) gasoline inventories were -0.7% below the seasonal 5-year average, and (3) distillate inventories were -21.0% below the 5-year seasonal average. US crude oil production in the week ending June 27 was unchanged w/w at 13.433 million bpd, modestly below the record high of 13.631 million bpd from the week of December 6.
Baker Hughes reported last Thursday that active US oil rigs in the week ending July 4 fell by -7 to a 3.75-year low of 425 rigs. Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.25-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. For more information please view the Barchart Disclosure Policy here.
