July WTI crude oil (CLN25) Tuesday closed up +3.07 (+4.28%), and July RBOB gasoline (RBN25) closed up +0.0520 (+2.34%).
Crude oil prices rallied sharply on Tuesday on the increase in Middle East tensions after President Trump downplayed the prospects for an early end to the Israel-Iran war. President Trump said that he hasn't reached out to Iran for peace talks "in any way, shape or form" and that a "permanent end and not a ceasefire" to the nuclear dispute with Iran would be the goal.
Gains in crude prices accelerated Tuesday afternoon as President Trump was set to meet his national security team, fueling speculation that the US may be on the verge of joining the attack against Iran. Israel said it will intensify its attacks on Tehran, and President Trump said he wants "unconditional surrender" from Iran.
So far, Iran has not impeded ship movement through the vital Strait of Hormuz that handles about 20% of the world's daily crude shipments, although navigational signals from over 900 vessels moving through the strait have been disrupted due to "extreme jamming" of signals from the Iranian port of Bandar Abbas, which has caused a collision of two tankers Tuesday near the Strait of Hormuz.
Tuesday's US economic news was weaker than expected, a bearish factor for energy demand and crude prices. May retail sales fell -0.9% m/m, weaker than expectations of -0.6% m/m. Also, the Jun NAHB housing market index unexpectedly fell -2 to a 2-1/2 year low of 32, weaker than expectations of an increase to 36.
Oil prices continue to be undercut by tariff concerns after President Trump said last Wednesday that he intends to send letters to dozens of US trading partners within one to two weeks, setting unilateral tariffs ahead of the July 9 deadline that came with his 90-day pause.
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 -7.2% w/w to 73.97 million bbl in the week ended June 13.
Concern about a global oil glut is negative for crude prices. On May 31, OPEC+ agreed to a 411,000 bpd crude production hike for July after raising output by the same amount for June. Saudi Arabia has signaled that additional 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 May crude production rose +200,000 bpd to 27.54 million bpd.
The consensus is that Wednesday's weekly EIA crude inventories will fall by -2.5 million bbl, and gasoline supplies will climb by +1.1 million bbl.
Last Wednesday's EIA report showed that (1) US crude oil inventories as of June 6 were -8.3% below the seasonal 5-year average, (2) gasoline inventories were -1.9% below the seasonal 5-year average, and (3) distillate inventories were -17.5% below the 5-year seasonal average. US crude oil production in the week ending June 6 rose +0.1% w/w at 13.428 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 June 13 fell by -3 to a 3-3/4 year low of 439 rigs. Over the past 2-1/2 years, the number of US oil rigs has fallen from the 5-1/4 year high of 627 rigs posted 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.
