Crude Oil Prices Rally as Iran War Disrupts Global Supplies

April WTI crude oil (CLJ26) on Friday closed up +2.98 (+3.11%), and April RBOB gasoline (RBJ26) closed up +0.0768 (+2.59%).  Energy prices settled sharply higher on Friday amid news headlines that whipsawed prices.  Crude prices recovered from early losses and rallied sharply on Friday after the Wall Street Journal reported that the US is moving a Marine expeditionary unit to the Middle East as Iran steps up attacks on the Strait of Hormuz.  US officials said Iran has begun laying mines in the Strait of Hormuz, an effort that could further complicate US efforts to restart shipping in the waterway.  

Crude prices moved lower briefly on Friday after the US Treasury granted a month-long waiver to import Russian oil loaded before Thursday, covering Russian crude oil and fuel on about 30 tankers carrying at least 19 million barrels.  Crude prices were also pressured by a report that said France and Italy had entered talks with Iran to negotiate a deal guaranteeing the safe passage of their ships through the Strait of Hormuz.  Friday’s rally in the dollar index ($DXY) to a 3.5-month high was also bearish for crude prices.

Crude oil prices spiked higher to a 3.75-year high of $119.48 on Monday after Israel, on Saturday, bombed 30 Iranian oil depots.  Crude prices have since fallen back and are trading between $90 and $100 a barrel.

The Strait of Hormuz remains essentially closed, and Persian Gulf oil producers have been forced to cut production by roughly 6% as local storage facilities reach capacity.  Iraq on Thursday suspended oil terminal activity following an attack by Iran on two tankers, and Oman temporarily evacuated a key oil export hub at Mina Al Fahal.  President Trump has said the US military has a plan to escort ships through the Strait of Hormuz, but US Energy Secretary Wright said on Thursday that military escorts through the strait were unlikely to start until the end of the month.  The Strait of Hormuz normally handles a fifth of the world’s oil.  Goldman Sachs warns that crude prices could exceed the 2008 record high of close to $150 a barrel if flows through the Strait of Hormuz remain depressed through March.

In a bearish factor for crude, OPEC+ on March 1 said it will boost its crude output by 206,000 bpd in April, above estimates of 137,000 bpd, 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 nearly another 1.0 million bpd left to restore.  OPEC’s February crude production rose by +640,000 bpd to a 3.25-year high of 29.52 million bpd.

Mounting crude supplies in floating storage are a bearish factor for oil prices.  According to Vortexa data, about 290 million bbl of Russian and Iranian crude are currently in floating storage on tankers, more than 50% higher than a year ago, due to blockades and sanctions on Russian and Iranian crude.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell by -21% w/w to 88.80 million bbl in the week ended March 6.

On February 10, the EIA raised its 2026 US crude production estimate to 13.60 million bpd from 13.59 million bpd last month, and raised its US 2026 energy consumption estimate to 96.00 (quadrillion btu) from 95.37 last month.  The IEA last month cut its 2026 global crude surplus estimate to 3.7 million bpd from last month’s estimate of 3.815 million bpd.  

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 seven 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 weekly EIA report was bearish for crude oil as crude stockpiles rose by +3.824 million bbls, a larger rise than expectations for a rise of +2.5 million bbls.  Wednesday’s EIA report showed that (1) US crude oil inventories as of March 6 were -2.7% below the seasonal 5-year average, (2) gasoline inventories were +5.4% above the seasonal 5-year average, and (3) distillate inventories were -1.6% below the 5-year seasonal average.  US crude oil production in the week ending March 6 was down -0.1% at 13.678 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 March 13 rose by +1 to 412 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.
 

Register a Revolut Business Account