June WTI crude oil (CLM26) saw a significant increase on Monday, closing up by +4.48 (+4.39%), while June RBOB gasoline (RBM26) also closed higher at +0.1430 (+3.98%). The surge in crude oil and gasoline prices came after both commodities experienced overnight losses but rebounded sharply following escalating tensions in the Strait of Hormuz.
The catalyst for the spike in crude prices was the announcement by the United Arab Emirates (UAE) that an Iranian drone attack had caused a fire at the Fujairah oil industry zone. Additionally, a cargo ship from South Korea was attacked in the Strait of Hormuz, prompting the UAE to issue a missile threat warning after an oil tanker was struck by Iranian drones outside the strait. The US Central Command reported that the US military successfully defended against attacks from Iranian drones, missiles, and armed small boats while facilitating the passage of two US-flagged vessels through the Strait of Hormuz.
President Trump’s statement about guiding neutral ships out of the Persian Gulf initially caused crude prices to dip in overnight trading. However, the US Central Command’s commitment to providing military support for ships transiting the strait, including guided-missile destroyers, aircraft, and drones, helped stabilize prices.
The ongoing closure of the Strait of Hormuz continues to support energy prices, posing a threat to exacerbate the global energy crisis. Roughly one-fifth of the world’s oil and liquefied natural gas pass through the strait, leading to estimates by Goldman Sachs that crude output in the Persian Gulf has been reduced by approximately 14.5 million barrels per day. The current disruption has already drawn down nearly 500 million barrels from global crude stockpiles, with projections indicating that this could reach a billion barrels by June.
As a result of the strait’s closure, Persian Gulf oil producers have been compelled to slash production by around 6% as local storage facilities reach capacity. President Trump has affirmed that the US naval blockade in the strait will remain in effect until a comprehensive deal is reached. Before the blockade, Iran exported about 1.7 million barrels per day in March.
In a separate development, the UAE’s decision to exit OPEC on May 1 could potentially impact crude prices by allowing the country to increase production without adhering to OPEC’s output quotas. The International Energy Agency (IEA) reported that the Iran war and the closure of the Strait of Hormuz have shuttered approximately 13 million barrels per day of global oil supply and damaged more than 80 energy facilities, with recovery expected to take up to two years.
Despite OPEC+’s plans to incrementally boost crude output, the ongoing conflict in the Middle East is hindering production increases. Vortexa’s report revealed a 1.4% weekly increase in crude oil stored on stationary tankers, reaching 149.56 million barrels, the highest level in four months.
The unresolved territorial issue between Russia and Ukraine has led to Ukrainian attacks on Russian refineries and tankers, impacting Russia’s crude oil export capabilities and reducing global oil supplies. Sanctions imposed by the US and EU on Russian oil companies have further constrained Russian oil exports.
The latest EIA report indicated that US crude oil inventories were slightly above the seasonal 5-year average, while gasoline and distillate inventories deviated from the average. US crude oil production remained steady at 13.586 million barrels per day, slightly below the record high set in November 2024.
Baker Hughes’ report on active US oil rigs showed a modest increase, signaling a potential stabilization in the rig count after a prolonged decline. The ongoing geopolitical tensions and supply disruptions in key oil-producing regions are expected to continue supporting oil prices in the near term.
In conclusion, the intricate web of geopolitical conflicts and supply disruptions in major oil-producing regions underscores the volatile nature of the global energy market. Investors and market participants should closely monitor developments in the Strait of Hormuz, Russia-Ukraine conflict, and OPEC’s production decisions to navigate the evolving landscape of the oil market effectively.
