Crude Oil Prices Sharply Higher on Concerns of Reopening of Strait of Hormuz

August WTI crude oil (CLQ26) on Thursday closed up +1.58 (+2.25%), and August RBOB gasoline (RBQ26) closed up +0.1109 (+3.97%).

Crude oil and gasoline prices erased early losses on Thursday and rallied sharply as short covering emerged on a report that an unknown projectile off the coast of Oman hit a cargo vessel.  Crude prices initially fell to a 4-month low on Thursday as the resumption of crude supplies through the reopened Strait of Hormuz has eased global oil supply concerns. 

Renewed tensions in the Persian Gulf pushed crude oil prices sharply higher on Thursday after the UK Maritime Trade Operations reported that a cargo vessel was hit by an unknown projectile off the coast of Oman in the Strait of Hormuz.  The incident occurred after several freighters turned around while attempting to cross the Strait of Hormuz, with maritime intelligence companies reporting broadcasts purportedly from the Iranian navy instructing ships not to cross.

Thursday afternoon, the Wall Street Journal reported that Iran attacked the Singapore-flagged ship in the Strait of Hormuz.  The attack prompted the International Maritime Organization (IMO) to pause its evacuation plans in the strait until further clarity is obtained.  The IMO on Tuesday said it had received safety assurances that could allow hundreds of ships to exit the Persian Gulf through the strait.  Stranded vessels had been racing out of Hormuz since an interim peace deal between the US and Iran came into effect last week. 

Crude prices were initially undercut on Thursday as Saudi Arabian ships are heading for the key Ras Tanura terminal, a sign that the kingdom is set to restart exports from inside the Persian Gulf for the first time since March.  Crude oil prices dropped to their lows on Thursday after Iraq warned it might quit the Organization of the Petroleum Exporting Countries (OPEC) if it doesn’t get a higher output quota.

The International Energy Agency (IEA) last Wednesday warned that the Iran war’s impact on global oil demand will be much deeper than previously anticipated, saying world oil consumption will decline by -1.1 million bpd this year, a larger drop than a previous estimate of -420,000 bpd.

Goldman Sachs last Tuesday cut its Brent crude price forecast to $80 a barrel in Q4 of this year, down from $90, and said it expects Persian Gulf crude exports to return to pre-war levels by the end of July, one month earlier than previously expected. 

The outlook for higher US crude output is negative for oil prices.  The Department of Energy (DOE) on June 9 raised its US 2026 crude production estimate to 13.72 million bpd from a May estimate of 13.65 million bpd.

Crude prices have support from the continued Ukrainian drone attacks on Russian oil infrastructure.  According to EA Analytics, Russian crude-processing rates averaged 4.32 million bpd in the first 10 days of June, the lowest in 20 years, amid damage to Russian energy infrastructure caused by drone and missile attacks from Ukraine.  According to Bloomberg, Ukrainian forces have struck three Russian fuel-producing facilities this month, following a record 17 attacks in May.  US and EU sanctions on Russian oil companies, infrastructure, and tankers have also curbed Russian oil exports.

As a bearish factor for crude, OPEC delegates said on May 14 that the cartel aims to continue a series of oil quota increases over the next few months, completing the return of halted oil production by the end of September.  The group already formally agreed to restore about two-thirds of the 1.65 million bpd supply cutback it made back in 2023 and said it plans to raise output targets further and to revive the final portion in three more monthly stages.  On May 3, OPEC+ said it will boost its crude output by 188,000 bpd in June after raising production by 206,000 bpd in May, although any production hike now seems unlikely given that Middle East producers are being forced to cut production due to the Middle East war.  OPEC’s May crude production fell by -3.36 million bpd to a 40-year low of 16.33 million bpd. 

Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days fell -4.1% w/w to 90.86 million bbl in the week ended June 19.

Wednesday’s EIA report showed that (1) US crude oil inventories as of June 19 were -6.5% below the seasonal 5-year average, (2) gasoline inventories were -5.6% below the seasonal 5-year average, and (3) distillate inventories were -10.3% below the 5-year seasonal average.  US crude oil production in the week ending June 19 rose +0.1% w/w to 13.819 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 June 19 was unchanged at an 11-month high of 433 rigs, up from the 4.25-year low of 406 rigs posted in December 2025.  However, the number of US oil rigs remains sharply below the 5.5-year high of 627 reported in December 2022.