Crude Oil Prices Plunge on Opening of the Strait of Hormuz

May WTI crude oil (CLK26) today is down -11.82 (-12.48%), and May RBOB gasoline (RBK26) is down -0.2138 (-6.76%).  Crude oil and gasoline prices have plummeted today, with crude falling to a 5-week low and gasoline sliding to a 1-week low.   Energy prices sank today after Iran said the Strait of Hormuz is now "completely open" to commercial shipping, paving the way for a peace deal to end the war.  The prospects for a formal peace agreement also solidified when Israel and Lebanon agreed to a 10-day ceasefire on Thursday, and the truce appears to be holding today.

Crude prices came under pressure today after Axios reported that the US and Iran are negotiating over a plan to end the war, with one element under discussion being that the US would release $20 billion in frozen Iranian assets in return for Iran giving up its stockpile of enriched uranium.

Persian Gulf oil producers have been forced to cut production by roughly 6% due to the closure of the Strait of Hormuz as local storage facilities reach capacity.  On Monday, the US began a blockade of all vessels passing through the Strait of Hormuz that call at Iranian ports or are headed there.  President Trump said today that the US naval blockade in the strait "will remain in full force" until a deal is fully agreed.  The blockade could exacerbate global oil and fuel shortages, as about a fifth of the world's oil and liquefied natural gas transits through the strait.  Iran has been able to export crude during the war, as it exported about 1.7 million bpd in March.

The International Energy Agency (IEA) said Monday that about 13 million bpd of global oil supply has been shuttered by the Iran war and the closure of the Strait of Hormuz.  The IEA also said that more than 80 energy facilities have been damaged during the conflict, and a recovery could take as long as two years.

In a bearish factor for crude, OPEC+ on April 5 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 March crude production fell by -7.56 million bpd to a 35-year low of 22.05 million bpd.

Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell -35% w/w to 89.13 million bbl in the week ended April 10, a 5-month low.

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.

Wednesday's EIA report showed that (1) US crude oil inventories as of April 10 were +1.9% above the seasonal 5-year average, (2) gasoline inventories were +1.1% above the seasonal 5-year average, and (3) distillate inventories were -5.2% below the 5-year seasonal average.  US crude oil production in the week ending April 10 was unchanged w/w at 13.596 million bpd, mildly below the record high of 13.862 million bpd posted in the week of November 7.

Baker Hughes reported last Friday that the number of active US oil rigs in the week ended April 10 was unchanged at 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.