August WTI crude oil (CLQ25) Monday closed down -5.33 (-7.22%), and August RBOB gasoline (RBQ25) closed down -0.1114 (-4.82%).
Crude oil and gasoline prices on Monday gave up sharp overnight gains and then plunged Monday afternoon after Iran’s retaliation for the US attack on the country’s nuclear sites was less severe than expected and spared US energy assets. Crude oil sank Monday afternoon when Iranian missile strikes on US bases in Qatar were intercepted and did no damage to US assets. Crude prices had already given back a 6% surge in overnight trade on speculation that Iran’s response to the US bombing of its nuclear sites is unlikely to disrupt oil supplies from the Middle East significantly.
Crude prices on Monday initially soared to a 5-1/4 month high in the initial reaction to the US strike over the weekend on Iran’s nuclear facilities. Crude has support due to concern that the US strikes over the weekend on Iran’s nuclear facilities could lead to an escalation of the Israel-Iran conflict that could lead to disruption of Middle Eastern oil supplies. Iran vowed retaliation and kept up attacks on Israel Monday, while Israeli forces kept up strikes on Iranian military sites and airports. Iran’s army command said the US has directly entered into war and should await “severe consequences” and that the Iranian army is “now free to take any action” against US interests. President Trump said he would respond with “far greater” force to any Iranian retaliation on US assets.
So far, Iran has not tried to close the vital Strait of Hormuz, which handles about 20% of the world’s daily crude shipments and also 20% of the world’s LNG shipments. However, Iran’s parliament called for the closure of the strait on Sunday, although this cannot happen without approval from Supreme Leader Khamenei. Energy research firm Kpler Ltd. said, “If Iran blocks the Strait of Hormuz, even for one day, oil can temporarily hit $120 to $150 a barrel, and if it attacks major oil production or export facilities in neighboring countries, it may drive up prices higher for longer.”
Concern about a global oil glut is negative for crude prices. On May 31, OPEC+ agreed to a 411,000 bpd crude production hike for July after raising output by the same amount for June. Saudi Arabia has signaled that additional similar-sized increases in crude output could follow, which is viewed as a strategy to reduce oil prices and punish overproducing OPEC+ members, such as Kazakhstan and Iraq. OPEC+ is boosting output to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production. OPEC+ had previously planned to restore production between January and late 2025, but now that production cuts won’t be fully restored until September 2026. OPEC May crude production rose +200,000 bpd to 27.54 million bpd.
Gasoline prices have support from the American Automobile Association (AAA) projection that a record 61.6 million people will travel by car this Fourth of July holiday (June 28 to July 6), up 2.2% from last year and a sign of stronger gasoline demand.
Oil prices continue to be undercut by tariff concerns, as President Trump recently stated that he intends to send letters to dozens of US trading partners within one to two weeks, setting unilateral tariffs ahead of the July 9 deadline that followed his 90-day pause.
A decline in crude oil held worldwide on tankers is bullish for oil prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days fell by -13% w/w to 79.66 million bbl in the week ended June 20.
Last Wednesday’s EIA report showed that (1) US crude oil inventories as of June 13 were -10.2% below the seasonal 5-year average, (2) gasoline inventories were -1.8% below the seasonal 5-year average, and (3) distillate inventories were -16.7% below the 5-year seasonal average. US crude oil production in the week ending June 14 was unchanged w/w at 13.431 million bpd, modestly below the record high of 13.631 million bpd from the week of December 6.
Baker Hughes reported last Friday that active US oil rigs in the week ending June 20 fell by -1 to a 3-3/4 year low of 438 rigs. Over the past 2-1/2 years, the number of US oil rigs has fallen from the 5-1/4 year high of 627 rigs posted in December 2022.
