Escalating Global Supply Risks Underpin Crude Oil Prices

September WTI crude oil (CLU26) on Wednesday closed up +2.49 (+2.95%), and September RBOB gasoline (RBU26) closed up +0.0186 (+0.58%).

Crude oil and gasoline prices settled sharply higher on Wednesday, with crude posting a 6-week high and gasoline climbing to a 2-month high.  Threats to global oil supplies are boosting crude oil prices as escalation of the US-Iran war has curbed oil tanker traffic through the Strait of Hormuz and threats by Houthi militants to blockade Saudi Arabia have reduced oil tanker traffic through the Red Sea.  Crude prices fell from their high on Wednesday after weekly EIA crude and gasoline inventories unexpectedly increased.

The US and Iran played down the prospect of peace talks anytime soon as disruptions to global oil supplies continue to mount.  The US conducted an 11th straight day of attacks on Iran on Wednesday in an effort to degrade the country's ability to threaten commercial shipping in the Strait of Hormuz.  Iran retaliated by striking US bases in Bahrain, Kuwait, and Jordan.  President Trump said on Tuesday that the US has “no interest” in meeting with Iran until they are ready for serious peace negotiations. On Wednesday, President Trump said the US “will bomb and destroy one bridge or power plant, including those located next to, or in, the capital city of Tehran” any time Iran shoots at a ship in the Strait of Hormuz.

Also, the Joint Maritime Information Center, a monitoring body for naval security, said on Wednesday that the Iran-backed Houthi rebels have deployed missiles and drones in preparation for attacks on shipping in the Red Sea.  The Houthis have vowed to blockade shipping linked to Saudi Arabia and warned shipowners against calling at the nation's ports.  The move threatens Saudi oil exports from Yanbu, a Red Sea hub that the Saudi's are using to ship crude since the war brought shipping through the Strait of Hormuz to a near halt.

Global crude oil supplies are tightening due to reduced flows through the Strait of Hormuz.  The International Maritime Organization warned last Wednesday that it's too dangerous to cross the Strait of Hormuz at the moment, and visible transit through the strait has fallen sharply as Iran continues targeting tankers attempting to transit it.

Crude prices also have support as Ukraine intensifies drone attacks on Russian oil infrastructure.  Russian crude production fell to 8.928 million bpd in June, the lowest in 2.5 years, according to monthly OPEC data.  According to EA Analytics, Russian crude-processing rates will average 3.51 million bpd in July, the lowest in 24 years, amid damage to Russian energy infrastructure caused by drone and missile attacks from Ukraine.  According to Bloomberg, Ukrainian forces have attacked Russian fuel-producing facilities more than 50 times this year, hitting at least 24 of Russia’s 34 largest refineries. As of the end of June, around 90% of Russian regions have imposed some form of fuel rationing or reported supply issues, as refining capacity has plunged following damage to facilities. The strikes have deepened a nationwide gasoline shortage, with several major refineries shut down and the government banning almost all gasoline, jet fuel and diesel exports.  Russia is the world’s number two diesel exporter, after the US, according to Vortexa. 

Stronger Russian crude exports are also adding to global oil supplies, which is bearish for prices. Data compiled by Bloomberg show the four-week average of Russian crude exports rose to 4.13 million bpd through June 28, the highest since Russia invaded Ukraine in 2022.  Russia may be boosting its crude exports as the country’s refining capacity has plunged due to damage at its refining facilities from Ukraine drone and missile attacks.

Signs of mounting global supplies are negative for crude prices, after the International Energy Agency said in a monthly report last Friday that the United Arab Emirates boosted crude oil production to an all-time high of 4.1 million bpd in June.

The International Energy Agency (IEA) warned on June 17 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.

The outlook for higher US crude output is negative for oil prices.  The Department of Energy (DOE) on July 7 raised its US 2026 crude production estimate to 13.78 million bpd from a June estimate of 13.72 million bpd.

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 July 5, OPEC+ said it will boost its crude output by 188,000 bpd in August, though that increase might prove difficult, as Middle East producers are still restarting output curtailed by the war in the region.  OPEC’s June crude production rose by +2.34 million bpd to 18.75 million bpd. 

Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +31% w/w to 90.03 million bbl in the week ended July 17.

Wednesday’s weekly EIA report was mostly negative for crude oil and products.  EIA crude inventories unexpectedly rose +2.01 million bbl versus expectations of a -1.95 million bbl decline.  Also, EIA gasoline supplies rose by +765,000 bbl versus expectations of a -1.9 million bbl decline.  In addition, EIA distillate stockpiles rose by +1.4 million bbl, a larger build than expectations of +825,000 bbl.  On the positive side, crude supplies at Cushing, the delivery point for WTI futures, fell -624,000 bbl. 

Wednesday’s EIA report showed that (1) US crude oil inventories as of July 17 were -5.3% below the seasonal 5-year average, (2) gasoline inventories were -7.1% below the seasonal 5-year average, and (3) distillate inventories were -9.6% below the 5-year seasonal average.  US crude oil production in the week ending July 17 fell -0.5% w/w to 13.798 million bpd, just 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 July 17 rose by +7 to a 13-month high of 452 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.