Crude Oil Prices Sink on Deal to Reopen Strait of Hormuz

July WTI crude oil (CLN26) on Monday closed down -4.13 (-4.87%), and July RBOB gasoline (RBN26) closed down -0.1026 (-3.36%).

Crude oil and gasoline prices sold off sharply on Monday, with crude falling to a 2-month low and gasoline dropping to a 2-month low.  Crude oil plunged on Monday after the US and Iran agreed to end their war and reopen the Strait of Hormuz. 

President Trump said the Strait of Hormuz will reopen after this Friday's signing of the peace deal in Switzerland, which will trigger the start of 60 days of talks on Iran's nuclear program.  However, if an agreement isn't reached on nuclear, the US could restart military attacks. 

According to Kpler, nearly 600 vessels are still stuck in the Persian Gulf awaiting departure through the strait, while hundreds more are waiting on the other side.  Vortexa said, "If the US-Iran deal is completed and insurance companies are willing to insure the vessels, ballast tankers would increase, followed by the restart of crude production and then the restart of refineries."

The outlook for higher US crude output is negative for oil prices.  The Department of Energy (DOE) last Tuesday 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.   On June 1, 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.

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.

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 -6.9% w/w to 76.50 million bbl in the week ended June 12.

Last Wednesday's EIA report showed that (1) US crude oil inventories as of June 5 were -5.3% below the seasonal 5-year average, (2) gasoline inventories were -5.9% below the seasonal 5-year average, and (3) distillate inventories were -13.9% below the 5-year seasonal average.  US crude oil production in the week ending June 5 rose +0.7% w/w to 13.799 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 June 12 rose by +2 to 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.