August WTI crude oil (CLQ25) Wednesday closed up +2.00 (+3.06%), and August RBOB gasoline (RBQ25) closed up +2.26 (+1.08%).
Crude oil and gasoline prices on Wednesday rallied to 1-week highs and settled sharply higher. Crude has support on concerns that Middle East tensions could flare up again after Iran moved to cut off communications with the International Atomic Energy Agency (IAEA). Gains in crude oil accelerated on Wednesday afternoon after the S&P 500 climbed to a new all-time high, indicating confidence in the economic outlook and energy demand.
Crude oil prices are supported after Iran moved to cut off communications with the IAEA, which could prompt the US and or Israel to launch additional attacks on Iran’s nuclear sites. President Trump said the US will “be there” unless Iran backs away from its nuclear program.
Weak global employment news on Wednesday was bearish for economic growth and prospects for energy demand. The US Jun ADP employment change unexpectedly fell -33,000, weaker than expectations of a +98,000 increase and the first decline in 2-1/4 years. Also, the Eurozone May unemployment rate unexpectedly rose +0.1 to 6.3%, showing a weaker labor market than expectations of no change at 6.2%
Concern about a global oil glut is negative for crude prices. Last Wednesday, Russia stated that it is open to another output hike for OPEC+ crude production in August, when the group meets this Sunday. 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; however, production cuts won’t be fully restored until September 2026. OPEC June crude production rose +360,000 bpd to a 1-1/2 year high of 28.10 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 -8.7% w/w to 80.22 million bbl in the week ended June 27.
Wednesday’s weekly EIA report was mixed for crude and products. On the bullish side, EIA distillate stockpiles fell by -1.7 million bbl, a larger draw than expectations of -1.2 million bbl. Also, crude supplies at Cushing, the delivery point for WTI futures, fell by -1.49 million bbl. On the bearish side, EIA crude inventories unexpectedly rose +3.85 million bbl versus expectations for a -2.7 million bbl draw. Also, EIA gasoline supplies rose by +4.19 million bbl, a larger build than expectations of +900,000 bbl.
Wednesday’s EIA report showed that (1) US crude oil inventories as of June 27 were -9.3% below the seasonal 5-year average, (2) gasoline inventories were -0.7% below the seasonal 5-year average, and (3) distillate inventories were -21.0% below the 5-year seasonal average. US crude oil production in the week ending June 27 was unchanged w/w at 13.433 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 27 fell by -6 to a 3-3/4 year low of 432 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.
