Crude Prices Soar as Middle East Tensions Curb Global Oil Supplies

September WTI crude oil (CLU26) is up +2.76 (+3.53%) on Friday, and September RBOB gasoline (RBU26) is up +0.1203 (+4.03%).

Crude oil and gasoline prices are sharply higher today, with gasoline climbing to a 1-week high.  The lack of an agreement between Iran and Oman to reopen the Strait of Hormuz is limiting crude supplies from the Middle East and is boosting oil prices.  Also, an attack on a Saudi oil refinery by Houthi militants is further straining global fuel supplies and is pushing energy prices higher.  

Crude oil prices are rallying today as Iran and Oman remained short of a deal to reopen the Strait of Hormuz.  Iranian Foreign Minister Abbas Araghchi said an agreement with Oman to establish a shipping route through the strait was "very close," but its reopening would require the US to end its blockade of Iranian shipping, withdraw its forces from around Iran, remove sanctions, release frozen assets, and compensate Iran for damages caused by US attacks.  It also demanded a permanent end to attacks on groups it backs in Lebanon, Iraq, Yemen, and Gaza.  President Trump on Sunday signaled he's prepared to let economic pressure on Iran build rather than launch additional military strikes, saying the US was only "semi-negotiating" with Iran on the Strait of Hormuz and that the US blockade of Iran was deepening the country's financial woes.

The risk of a renewed flare-up across the Middle East remains high, as another UAE tanker was targeted by a missile on Saturday while transiting the Strait of Hormuz.  Also, on Sunday, Houthi militants in Yemen claimed an attack on Saudi Arabia's Jazan refinery.  The Houthis said they will escalate attacks on Saudi oil tankers in the northern Red Sea to prevent them from transiting the area. 

Traffic through the Strait of Hormuz remains slow, tightening global crude supplies and boosting oil prices.  Energy Aspects said today that only an average of five vessels are transiting through the strait, far below the 14 ships a day seen after the US and Iran reached a memorandum of understanding in June.

Crude prices also have support as Ukraine intensifies drone attacks on Russian oil infrastructure.  Ukraine has attacked Russian refineries, oil tankers, and major pipeline infrastructure at least 30 times in July, the second highest monthly number of attacks since the war began in 2022.  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.  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. 

Robust crude supplies in China may reduce Chinese crude purchases in the near term, a bearish factor for oil prices.  China's crude inventories remain abundant, with supplies falling by only 54 million bbl since early May to around 1.2 billion bbl, according to data from Kpler.

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 remains above 4 million bpd in the period to July 26 and 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's drone and missile attacks.

As a bearish factor for crude, OPEC delegates on August 2 approved their final increase of +188,000 bpd in crude production for September.  The group has now restored all of the 1.65 million bpd supply cutback it made back in 2023 and said it plans to hold output steady for the rest of the year after the September hike.  The production increases by OPEC+ might prove difficult to achieve amid renewed US-Iran military attacks in the region.  OPEC's July crude production rose by +1.16 million bpd to 19.44 million bpd. 

Vortexa reported today that crude oil stored on tankers that have been stationary for at least 7 days fell -0.7% w/w to 119.28 million bbl in the week ended August 7.

Last Wednesday's EIA report showed that (1) US crude oil inventories as of July 31 were -6.2% below the seasonal 5-year average, (2) gasoline inventories were -6.2% below the seasonal 5-year average, and (3) distillate inventories were -11.7% below the 5-year seasonal average.  US crude oil production in the week ending July 31 rose +0.1% w/w at 13.804 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 August 7 rose by +3 to a 14-month high of 454 rigs.