Crude Oil and Gasoline Prices Rise Amid Geopolitical Tensions

On Wednesday, July WTI crude oil (CLN25) closed up +0.95 (+1.56%), while July RBOB gasoline (RBN25) increased by +0.0152 (+0.74%).

Prices rose due to concerns that the US may enhance sanctions on Russian crude exports. This follows Russian President Putin’s refusal to agree to a ceasefire in Ukraine. Additionally, crude oil received support from reports indicating that Israel may be preparing to strike Iran’s nuclear facilities.

Despite these gains, crude oil prices faced downward pressure from a strengthening dollar and expectations that OPEC+ will boost crude output during its meeting on Saturday. Recent statements from President Trump highlighted the risks associated with Putin’s continued actions in Ukraine, signaling potential new sanctions against Russia.

Senator Graham claimed to have enough support in Congress to pass a sanctions bill imposing a 500% tariff on any country buying Russian energy products. Escalating geopolitical risks, especially in the Middle East, further supported crude prices. Reports indicated that the US has intelligence suggesting Israel’s plans for a potential strike on Iranian nuclear sites.

Concerns over a global oil surplus also lingered following Bloomberg’s report that OPEC+ is contemplating a 411,000 barrels per day (bpd) production increase for July during its meeting on May 31. OPEC+ had previously agreed to raise its production by 411,000 bpd for June. Saudi Arabia hinted that similar increases could follow to address overproduction issues from countries like Kazakhstan and Iraq.

OPEC+ aims to reverse a two-year production cut and gradually restore a total of 2.2 million bpd. However, the timeline for full production restoration has shifted to September 2026 from late 2025. In April, crude production fell by 200,000 bpd to 27.24 million bpd.

Doubts over a potential nuclear deal between Iran and the US also supported crude oil prices. Iranian Supreme Leader Ali Khamenei stated last week that he doubts negotiations with the US will succeed. President Trump has warned that Iran will face negative consequences if it does not accept a US proposal related to its nuclear program.

Crude prices could benefit from reduced global oil supplies. The US State Department recently sanctioned an international network facilitating the shipment of Iranian oil to China, specifically targeting Sepehr Energy Jahan Nama Pars for using proceeds to fund weapons development.

However, a decline in stored crude oil worldwide is bearish for prices. Vortexa reported that the amount of crude on stationary tankers fell by 4.2% to 95.40 million barrels for the week ending May 23.

Additionally, new US sanctions on Russia’s oil industry, imposed in January, might restrict global oil supplies. In March, Russian oil product exports reached 3.45 million bpd, while crude exports dropped by 90,000 bpd to 3.4 million bpd for the week ending May 18, according to vessel-tracking data from Bloomberg.

The consensus for Thursday’s weekly EIA crude inventories expects a decline of 400,000 barrels, while gasoline supplies may rise by 550,000 barrels.

According to last Wednesday’s EIA report, US crude oil inventories as of May 16 were 5.6% below the seasonal 5-year average. Gasoline inventories were 2.2% below that average, and distillate inventories were 16.1% below. US crude production remained stable at 13.392 million bpd, just under the December record of 13.631 million bpd.

Baker Hughes reported a decrease in active US oil rigs, which fell by 8 to 465, marking a 3.5-year low. The US rig count has dropped from a 5-year high of 627 rigs in December 2022.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy.

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