Crude Prices Fall on Iran Peace Hopes and Weak China Oil Demand

July WTI crude oil (CLN26) today is down -1.86 (-2.00%), and July RBOB gasoline (RBN26) is up +0.0202 (+0.66%).

Crude oil prices are under pressure today, amid hopes of a US-Iran peace settlement that would allow the reopening of the Strait of Hormuz.  Also, today's rally in the dollar index ($DXY) to a 1.75-month high is weighing on crude prices. 

Crude oil prices are falling today even as the US and Iran have made little progress in talks over an interim peace deal, with clashes between Israel and Hezbollah militants ongoing in Lebanon.  Iran insists on a ceasefire in Lebanon before accepting a US deal to extend the truce and reopen the Strait of Hormuz.  President Trump said Thursday that negotiations with Iran are in the "final" stages without elaborating.  In contrast, Iran's Foreign Minister Abbas Araghchi earlier said there had been "no tangible progress" even though both sides continue to exchange messages via mediators.

Weakness in Chinese demand for crude is also pressuring oil prices today.  China's May crude imports sank to 6.7 million bpd, the lowest level in over 10 years, according to Kpler data intelligence.

The International Energy Agency (IEA) said in a monthly report released in May that global oil inventories declined at about 4 million bpd in March and April, and that the market will remain "severely undersupplied" until October, even if the conflict ends soon.  Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by about 14.5 million bpd, and that the current disruption has drawn down nearly 500 million bbl from global crude stockpiles, which could hit a billion bbl by June.

Oil prices also saw support on Monday after Bloomberg reported that Russia banned jet fuel exports after Ukraine's attacks on Russian oil refineries reached a record high in May.  Russia's refinery runs in May fell -13% y/y to 4.58 million bpd, the lowest since October 2009, according to data from Bloomberg.  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 rose +8.8% w/w to 91.06 million bbls in the week ended May 29.

Wednesday's EIA report showed that (1) US crude oil inventories as of May 29 were -3.5% below the seasonal 5-year average, (2) gasoline inventories were -4.9% below the seasonal 5-year average, and (3) distillate inventories were -12.4% below the 5-year seasonal average.  US crude oil production in the week ending May 29 fell -0.1% w/w to 13.707 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 May 29 rose by +4 to an 11-month high of 429 rigs, well 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.