Crude Oil Prices Fall on Hopes Peace Negotiations With Iran Will Materialize

June WTI crude oil (CLM26) on Friday closed down -1.45 (-1.51%), and June RBOB gasoline (RBM26) closed down -0.0065 (-0.19%).  Crude oil and gasoline prices gave up early gains on Friday and settled sharply lower after Pakistan said a second round of US-Iran peace talks is expected.  Losses in crude prices accelerated on Friday after CNN reported that President Trump will send two envoys to Pakistan this weekend for talks with Iran.

Optimism that the US and Iran are moving toward talks after days of deadlock is weighing on crude prices.  Bloomberg reported Friday that Iranian Foreign Minister Abbas Araghchi is expected to arrive in Pakistan on Friday night for a possible second round of peace talks between the US and Iran.  However, Iran said no talks are scheduled between US and Iranian officials.

Energy prices remain underpinned as the Strait of Hormuz remains essentially closed, threatening to deepen the global energy crisis.  The ongoing blockade could exacerbate global oil and fuel shortages, as about a fifth of the world’s oil and liquefied natural gas transits through the strait.  Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by about 14.5 million bpd, or more than 50%, so far in April, and that the current disruption has drawn down nearly 500 million bbl from global crude stockpiles, which could hit a billion bbl by June.  

Persian Gulf oil producers have been forced to cut production by roughly 6% due to the closure of the Strait of Hormuz as local storage facilities reach capacity.  Last Monday, the US began a blockade of all vessels passing through the Strait of Hormuz that call at Iranian ports or are headed there.  President Trump said last Friday that the US naval blockade in the strait “will remain in full force” until a deal is fully agreed.  Iran had been able to export crude during the war before the blockade, as it exported about 1.7 million bpd in March.

The International Energy Agency (IEA) said last Monday that about 13 million bpd of global oil supply has been shuttered by the Iran war and the closure of the Strait of Hormuz.  The IEA also said that more than 80 energy facilities have been damaged during the conflict, and a recovery could take as long as two years.

In a bearish factor for crude, OPEC+ on April 5 said it will boost its crude output by 206,000 bpd in May, although that production hike now seems unlikely given that Middle East producers are being forced to cut production due to the Middle East war.  OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has another 827,000 bpd left to restore.  OPEC’s March crude production fell by -7.56 million bpd to a 35-year low of 22.05 million bpd.

Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +11% w/w to 115.89 million bbl in the week ended April 17.

The most recent US-brokered meeting in Geneva to end the war between Russia and Ukraine ended early as Ukrainian President Zelenskiy accused Russia of dragging out the war.  Russia has said the “territorial issue” remains unresolved with Ukraine, and there’s “no hope of achieving a long-term settlement” to the war until Russia’s demand for territory in Ukraine is accepted.  The outlook for the Russia-Ukraine war to continue will keep restrictions on Russian crude in place and is bullish for oil prices.

Ukrainian drone and missile attacks have targeted at least 28 Russian refineries over the past nine months, limiting Russia’s crude oil export capabilities and reducing global oil supplies.  Also, since the end of November, Ukraine has ramped up attacks on Russian tankers, with at least six tankers attacked by drones and missiles in the Baltic Sea.  In addition, new US and EU sanctions on Russian oil companies, infrastructure, and tankers have curbed Russian oil exports.

Wednesday’s EIA report showed that (1) US crude oil inventories as of April 17 were +2.8% above the seasonal 5-year average, (2) gasoline inventories were -0.1% below the seasonal 5-year average, and (3) distillate inventories were -7.5% below the 5-year seasonal average.  US crude oil production in the week ending April 17 fell -0.1% w/w to 13.585 million bpd, mildly below the record high of 13.862 million bpd posted in the week of November 7.

Baker Hughes reported Friday that the number of active US oil rigs in the week ended April 24 fell by -3 to 407 rigs, just above the 4.25-year low of 406 rigs posted in the week ended December 19.  Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.
 

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