Crude Prices Settle Higher on Energy Demand Optimism and Canadian Wildfires

Today Markets UAEJune 4, 2025

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July WTI crude oil (CLN25) Tuesday closed up +0.89 (+1.42%), and July RBOB gasoline (RBN25) closed up +0.0263 (+1.28%).

Crude oil and gasoline prices on Tuesday added to Monday’s gains, with crude posting a 1-1/2 week high. Signs of strength in the US labor market support economic growth prospects and energy demand, as JOLTS job openings unexpectedly rose in April. Crude also garnered support Tuesday from the ongoing wildfires in Canada that have shut down some Canadian oil production. In addition, Tuesday’s rally in the S&P 500 to a 3-month high shows confidence in the economic outlook and energy demand. Tuesday’s dollar strength limited the upside in crude prices.

Reduced oil production in Canada is bullish for crude prices, as wildfires in Alberta, Canada, have shut down nearly 350,000 barrels per day (bpd) of crude production, approximately 7% of Canada’s total output.

Global energy demand concerns are negative for oil prices after the Organization for Economic Cooperation and Development (OECD) on Tuesday cut its global 2025 GDP forecast to 2.9% from a March forecast of 3.1%. Also, the China May Caixin manufacturing PMI unexpectedly fell -2.1 to 48.3, weaker than expectations of an increase to 50.7 and the steepest pace of contraction in more than 2-1/2 years.

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 -28% w/w to 72.07 million bbl in the week ended May 30.

Crude oil has support from last week’s comments from President Trump, who said that Russian President Putin was “playing with fire” for his continued attacks on Ukraine. CNN reported Tuesday that Mr. Trump could move ahead with new sanctions on Russia in the coming days. Also, Senator Graham said he has the votes in Congress to pass a sweeping sanctions bill against Russia that would slap a 500% tariff on any country that buys Russian energy products.

The upside for crude prices in the near term could be limited as an escalation of trade tensions between the US and China could lead to slower economic activity and reduced demand for crude. China’s Ministry of Commerce on Monday accused the US of unilaterally introducing new discriminatory restrictions, including new guidelines on AI chip export controls, curbs on chip design software sales to China, and the revocation of Chinese student visas, and vowed to take measures to defend its interests.

Concern about a global oil glut is negative for crude prices. On Saturday, OPEC+ agreed to a 411,000 bpd crude production hike for July. On May 3, OPEC+ agreed to raise its crude production level by 411,000 bpd in 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 cut won’t be fully restored until September 2026. OPEC May crude production rose +200,000 bpd to 27.54 million bpd.

Doubts about a nuclear deal between Iran and the US supported crude oil prices. Iranian Supreme Leader Ali Khamenei recently said that he doesn’t think negotiations with the US will succeed, and he urged the Trump administration to stop “talking nonsense.” President Trump recently said Iran will face “something bad” if it doesn’t quickly accept a US proposal over its nuclear program.

Crude has support due to the outlook for smaller global oil supplies after the US State Department recently slapped sanctions on an international network that facilitated the shipment of millions of barrels of Iranian oil to China. The State Department sanctioned the alleged Iranian front company called Sepehr Energy Jahan Nama Pars for using revenue from the sales of crude to fund the development of weapons, including ballistic missiles and drones, nuclear proliferation, and Iran’s “terrorist proxies.”

In a supportive factor for crude oil prices, the US on January 10 imposed new sanctions on Russia’s oil industry that could curb global oil supplies. Weekly vessel-tracking data from Bloomberg showed Russian crude exports fell by -810,000 bpd w/w to 3.24 million bpd in the week to May 25.

The consensus is for Wednesday’s weekly EIA crude inventories to fall -3.1 million bbl, and gasoline supplies to fall by -500,000 bbl.

Last Thursday’s EIA report showed that (1) US crude oil inventories as of May 23 were -6.2% below the seasonal 5-year average, (2) gasoline inventories were -3.1% below the seasonal 5-year average, and (3) distillate inventories were -17.4% below the 5-year seasonal average. US crude oil production in the week ending May 23 rose +0.1% w/w at 13.401 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 May 30 fell by -4 to a 3-1/2 year low of 461 rigs. The number of US oil rigs has fallen over the past two years from the 5-year high of 627 rigs posted in December 2022.