Crude Prices Fluctuate on Iran War Headlines

May WTI crude oil (CLK26) today is up +0.77 (+0.69%), and May RBOB gasoline (RBK26) is up +0.0009 (+0.03%).  Crude oil and gasoline prices are moving higher today, with crude posting a 4-week high.   Crude prices rallied after President Trump said the US could leave the Iran war right now but he "wants to finish it up."  Mr. Trump is threatening to unleash “all hell” on Iran if the Strait of Hormuz is not reopened to all shipping traffic by Tuesday.   Prices fell from their best levels today on a reported push for a ceasefire in Iran.

Crude prices fell from their best level today after Axios reported that the US, Iran, and a group of regional mediators are discussing the terms for a potential 45-day ceasefire that could lead to a permanent end to the war.  On Sunday, President Trump extended his previous 10-day deadline for Iran to open the Strait of Hormuz by 20 hours until Tuesday evening and threatened to unleash “all hell” on Iran if the Strait of Hormuz is not reopened to all shipping traffic by Tuesday.   However, Mr. Trump also said the US was in “deep negotiations” with Iran and “there is a good chance to make a deal, but if they don’t make a deal, I am blowing up everything over there.” However, the chances of a ceasefire appear doubtful after a spokesman for Iran’s Foreign Ministry said, “No rational person” would accept a ceasefire proposal and that Iran wants a permanent end to the war.

Crude prices also have support after Saudi Arabia’s state producer, Saudi Aramco, raised the price of its main oil grade to Asia by $17 a barrel for May delivery, the biggest jump on record.

The Strait of Hormuz remains essentially closed, limiting global oil supplies and boosting crude prices.  Persian Gulf oil producers have been forced to cut production by roughly 6% as local storage facilities reach capacity.  The Strait of Hormuz normally handles a fifth of the world’s oil.  The UAE is preparing to help the US and other allies open the Strait of Hormuz by force and is lobbying for a United Nations Security Council resolution authorizing such action.  The International Energy Agency (IEA) said that more than 40 energy sites across nine countries in the Middle East have been “severely or very severely” damaged and face lengthy repairs/  The IEA warned that even if the war were to end within a few weeks, it would still take time for normal flows through Hormuz to resume.

US and Israeli strikes on Iranian targets continued over the weekend, while Kuwait reported fires at some of its refining facilities after Iranian drone and missile attacks.  Also, the UAE reported a petrochemical plant at Ruwais and the Habshan gas facility, the UAE’s largest natural gas processing facility, halted production following Iranian attacks.  The New York Times, citing US intelligence reports, said Iranian personnel have been digging out underground missile bunkers and silos struck by US and Israeli bombs and returning them to operations hours after attacks.  

Concerns that the Iran war could widen throughout the Middle East are also bullish for crude prices.  Saudi Arabia agreed to give the US military access to King Fahd Air Base, and the UAE said Iranian nationals aren’t allowed to enter or transit the country.  Iran’s Middle Eastern neighbors are growing frustrated with Iran, which has responded to US and Israeli attacks by hitting targets in several nearby nations.

In a bearish factor for crude, OPEC+ on Sunday 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 February crude production rose by +640,000 bpd to a 3.25-year high of 29.52 million bpd.

Mounting crude supplies in floating storage are a bearish factor for oil prices.  According to Vortexa data, about 290 million bbl of Russian and Iranian crude are currently in floating storage on tankers, more than 40% higher than a year ago, due to blockades and sanctions on Russian and Iranian crude.  Vortexa reported today that crude oil stored on tankers that have been stationary for at least 7 days fell -3.9% w/w to 130.25 million bbl in the week ended April 3.

The most recent US-brokered meeting in Geneva to end the war between Russia and Ukraine ended early as Ukrainian President Zelenskiy accused Russia of dragging out the war.  Russia has said the “territorial issue” remains unresolved with Ukraine, and there’s “no hope of achieving a long-term settlement” to the war until Russia’s demand for territory in Ukraine is accepted.  The outlook for the Russia-Ukraine war to continue will keep restrictions on Russian crude in place and is bullish for oil prices.

Ukrainian drone and missile attacks have targeted at least 28 Russian refineries over the past eight months, limiting Russia’s crude oil export capabilities and reducing global oil supplies.  Also, since the end of November, Ukraine has ramped up attacks on Russian tankers, with at least six tankers attacked by drones and missiles in the Baltic Sea.  In addition, new US and EU sanctions on Russian oil companies, infrastructure, and tankers have curbed Russian oil exports.

Last Wednesday’s EIA report showed that (1) US crude oil inventories as of March 27 were +1.4% above the seasonal 5-year average, (2) gasoline inventories were +4.2% above the seasonal 5-year average, and (3) distillate inventories were -2.2% below the 5-year seasonal average.  US crude oil production in the week ending March 27 was unchanged at 13.657 million bpd, mildly below the record high of 13.862 million bpd posted in the week of November 7.

Baker Hughes reported last Thursday that the number of active US oil rigs in the week ended April 3 rose by +2 to 411 rigs, just above the 4.25-year low of 406 rigs posted in the week ended December 19.  Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.