April WTI crude oil (CLJ26) is up +5.66 (+7.95%) today, and April RBOB gasoline (RBJ26) is up +0.1189 (+5.02%).
Crude oil and gasoline prices rose sharply for a second day today, with crude oil at an 8.5-month high and gasoline at a 19-month high. The main reason for the increase in oil prices is the war in Iran as the US and Israel continue to attack the country. Crude oil prices fell from their best levels today after the dollar index ($DXY) rose to a 3.25-month high and after stocks fell, which dampened confidence in the economic outlook and energy demand.
Crude oil prices are rising today as the war in Iran enters its fourth day and shows no signs of abating. An adviser to Iran’s Islamic Revolutionary Guard Corps told state television today that the Strait of Hormuz, which passes through Iran’s coast and transports a fifth of the world’s oil, “we will set fire to every ship.” The closure of the Strait of Hormuz forced Iraq, OPEC’s second-biggest producer, to shut down oil production at one of its largest oil fields in Somalia as storage tanks filled up. Goldman Sachs estimates the real-time risk premium for crude oil at $18/bbl, assuming the impact of a six-week total shutdown on oil traffic in the Strait of Hormuz.
Also, due to the fall of the debris of the Iranian drone, a huge fire broke out today in Fujairah, the major oil trading center of the United Arab Emirates, which is one of the largest oil storage centers in the Middle East. In addition, Iranian drone strikes forced Saudi Arabia to close the Ras Torah refinery, the country’s largest, which refines 550,000 bpd of crude oil.
As an emergency factor for crude oil, OPEC+ said on Sunday that it will increase crude oil production by 206,000 bpd in April, above the estimate of 137,000 bpd. OPEC+ is trying to restore all production of the 2.2 million bpd it committed to by early 2024, but still has about 1.0 million bpd left to restore. OPEC’s January crude output fell -230,000 bpd to a 5-month low of 28.83 million bpd.
Rising crude supplies in past stocks are a downward pressure factor on oil prices. According to data from Vortexa, there are currently about 290 million barrels of Russian and Iranian crude oil in tankers, which is 50% more than last year, due to sanctions and embargoes on Russian and Iranian crude oil. Vortexa reported on Monday that crude oil stored in tankers that were idle for at least 7 days rose +20% w/w/w to 105.48 million bbl in the week ended February 27.
Increased crude exports from Venezuela are also boosting global oil supplies and lower prices. Reuters reported on February 9 that Venezuela’s crude exports rose to 800,000 bpd in January from 498,000 bpd in December.
On February 10, the EIA raised its 2026 US crude production forecast to 13.60 million bpd from 13.59 million bpd last month, and raised its 2026 US energy consumption forecast to 96.00 (quadrillion btu) from 95.37 last month. The IEA last month cut its 2026 global crude oil surplus estimate to 3.7 million bpd from last month’s estimate of 3.815 million bpd.
The latest US-brokered meeting in Geneva to end the war between Russia and Ukraine ended after Ukrainian President Zelensky accused Russia of having a hand in prolonging the war. Russia has said that there is no solution to the “territory issue” with Ukraine, and that there is “no hope of achieving a long-term settlement” of the conflict unless Russia’s demands for territory in Ukraine are accepted. The prospect of continued Russian-Ukrainian conflict will keep Russian crude oil restrictions in place and boost oil prices.
Ukraine’s drone and missile attacks have targeted at least 28 Russian refineries over the past seven months, limiting Russia’s ability to export crude oil and reducing global oil supplies. Also, since the end of November, Ukraine has stepped up attacks on Russian tankers in the Baltic Sea, with at least six tankers attacked by drones and missiles. In addition, new US and EU sanctions on Russian oil companies, infrastructure and tankers have limited Russian oil exports.
Last Wednesday’s EIA report showed that (1) U.S. crude oil inventories as of February 20 were -2.5% below the 5-year seasonal average, (2) natural gas inventories were +3.2% above the 5-year seasonal average, and (3) extractive inventories were -5.3% below the 5-year seasonal average. US crude oil production fell -0.2% w/w to 13.702 million bpd in the week ended February 20, just down from a record high of 13.862 million bpd from the week of November 7.
Baker Hughes reported last Friday that the number of active US oil rigs at the end of February 27 fell -2 to 409 rigs, just above the 4.25 year low of 406 rigs posted in the week ending December 19. Over the past 2.5 years, the number of US oil rigs has fallen sharply at 56-57 in December. 2022.
As of the date of publication, Amir Espland had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
