August WTI crude oil (CLQ25) on Tuesday closed up +0.40 (+0.59%), and August RBOB gasoline (RBQ25) closed up +0.0328 (+1.52%).
Crude oil and gasoline prices on Tuesday added to Monday's gains and posted 2-week highs. Elevated tensions in the Middle East are boosting crude prices as Houthi rebels resumed their attacks on ships sailing through the Red Sea, which could attract retaliatory US military strikes on the Houthi rebels. Tuesday's rally in the dollar index (DXY00) to a 1.5-week high limited gains in crude.
Heightened tensions in the Middle East are supportive of crude prices after Yemen's Houthi rebels attacked another merchant ship in the Red Sea on Tuesday, after attacking a vessel sailing through the Red Sea on Sunday. The attacks on shipping could boost freight rates and insurance costs for shippers, making crude supplies from the Middle East more expensive. The attacks have already prompted retaliatory strikes by Israeli jets on Houthi targets and could prompt strikes from the US as well.
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.
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 Wednesday's 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.
The consensus is that Wednesday's weekly EIA crude inventories will decline by -1.6 million bbl, and gasoline supplies will fall by -1.0 million bbl.
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.
