June WTI crude oil (CLM25) Tuesday closed up +1.96 (+3.43%), and June RBOB gasoline (RBM25) closed up +0.0417 (+2.06%).
Crude oil and gasoline prices settled sharply higher on Tuesday. Tuesday's weaker dollar is bullish for energy prices. Also, short covering emerged to push crude prices higher Tuesday on concern that US crude production is set to decline after Diamondback Energy, the largest independent crude producer in the Permian Basin, cut its full-year production forecast and said it expects US crude output to fall in the coming months due to low oil prices.
Crude prices dropped from their best levels Tuesday after Oman Foreign Minister Badr Albusaidi said the US and Houthis had reached a ceasefire deal that will "ensure freedom of navigation and the smooth flow of international commercial shipping" in the Red Sea and Bab al-Mandab Strait.
Crude prices fell to a 3-1/2 week low Monday due to concern about a global oil glut after OPEC+ agreed on Saturday to raise its crude production level by 411,000 bpd in June. In a move that could further pressure crude prices, Saudi Arabia signaled that further similar-sized increases in crude output could follow, which is viewed as a strategy to reduce oil prices and punish 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. OPEC+ had previously planned to restore production between January and late 2025, but now that production cut won't be fully restored until September 2026. OPEC Apr crude production fell -200,000 bpd to 27.24 million bpd.
Concern that the US-China trade war will linger and hurt global economic growth and energy demand is also weighing on crude prices after President Trump said he has no plans to talk to Chinese President Xi Jinping.
Additional sanctions on Russian crude may curb global oil supplies and support crude prices. US Senator Graham said last Thursday that he has support from 72 senators for a bill that would enact "bone-crushing" new sanctions on Russia and include a 500% tariff on imports from countries that buy Russian crude, petroleum products, natural gas, uranium, and prohibit US citizens from buying Russian sovereign debt.
The US and Iran reported progress in recent talks on a deal over Iran's nuclear program, with negotiators from both sides agreeing to meet again in Europe this week. Any agreement on Iran's nuclear program could prompt the US to remove export restrictions on Iranian crude oil, which would boost oil supplies on the global market and be bearish for crude prices.
A decline in crude oil held worldwide on tankers is bullish for oil prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days fell by -14% w/w to 79.84 million bbl in the week ended May 2.
Stronger crude demand in China, the world's largest crude importer, supports oil prices. Reuters reported earlier this month that China's Mar crude imports rose to 12.1 million bpd, the highest since August 2023.
In a supportive factor for crude oil prices, the US on January 10 imposed new sanctions on Russia's oil industry that could curb global oil supplies. The measures targeted Gazprom Neft and Surgutneftgas, which exported about 970,000 bpd of Russian crude in the first 10 months of 2024, accounting for about 30% of its tanker flow, according to Bloomberg data. The US also targeted insurers and traders linked to hundreds of tanker cargoes. Russian oil product exports in March rose to a 5-month high of 3.45 million bpd, according to data compiled by Bloomberg from analytics firm Vortexa. Weekly vessel-tracking data from Bloomberg showed Russian crude exports rose by +40,000 bpd w/w to 3.39 million bpd in the week to April 27.
The consensus is that Wednesday's weekly EIA crude inventories will fall -1.85 million bbl, and EIA gasoline supplies will drop -1.2 million bbl.
Last Wednesday's EIA report showed that (1) US crude oil inventories as of April 25 were -6.6% below the seasonal 5-year average, (2) gasoline inventories were -3.9% below the seasonal 5-year average, and (3) distillate inventories were -11.9% below the 5-year seasonal average. US crude oil production in the week ending April 25 was unchanged w/w to 13.465 million bpd, modestly below the record high of 13.631 million bpd from the week of December 6.
Baker Hughes reported last Friday that active US oil rigs in the week ending May 2 fell -4 to 479 rigs, moderately above the 3-1/4 year low of 472 rigs posted on January 24. The number of US oil rigs has fallen over the past two years from the 5-year high of 627 rigs posted in December 2022.
