September WTI crude oil (CLU26) on Tuesday closed down -4.57 (-5.69%), and September RBOB gasoline (RBU26) closed down -0.1145 (-3.86%).
Crude oil and gasoline prices sold off sharply on Tuesday for a second day, with crude falling to a 3-week low and gasoline dropping to a 4.75-month nearest-futures low. Growing hopes that the US and Iran are moving to a deal to reopen the Strait of Hormuz are weighing on crude prices. Also, an increase in Saudi oil exports through the Red Sea is boosting global crude supplies and undercutting oil prices.
More News from Barchart
Crude prices fell sharply on Tuesday after a Qatari spokesman said a proposed resolution “is being circulated between the US and Iran,” cautioning that a deal has not yet been reached. Crude prices extended their losses today when Treasury Secretary Bessent said: “There is a chance we may have a deal on Tuesday or Wednesday to open the strait.” Also, the key Saudi export port of Yanbu in the Red Sea had its busiest day on Monday since Houthi rebels began attacking shipping in the region, as more ships transited through the Bab el-Mandeb chokepoint.
Crude prices initially moved higher in overnight trading after President Trump threatened Iran with renewed air strikes and stressed that his latest offer of talks is Iran’s “last chance” as he demanded full reopening of the Strait of Hormuz. A diplomatic resolution is hanging on ongoing talks between Oman and Iran to get more ships moving through the strait.
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.
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.
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 Sunday 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 on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +4.6% w/w to 112164 million bbl in the week ended July 31.
The consensus is that Wednesday’s weekly EIA crude inventories fell by -1.5 million bbl, and gasoline supplies fell by -1.45 million bbl.
Last Wednesday’s EIA report showed that (1) US crude oil inventories as of July 24 were -6.4% below the seasonal 5-year average, (2) gasoline inventories were -6.6% below the seasonal 5-year average, and (3) distillate inventories were -8.5% below the 5-year seasonal average. US crude oil production in the week ending July 24 was unchanged w/w at 13.796 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 31 rose by +1 to 451 rigs, just below the 1.25-year high of 452 rigs posted in the week ended July 17.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com