May WTI crude oil (CLK26) on Thursday closed up +11.42 (+11.41%), and May RBOB gasoline (RBK26) closed up +0.1966 (+6.36%). Crude oil and gasoline prices rallied sharply on Thursday, with crude posting a 3.5-week high. Crude prices are soaring after President Trump pledged more aggressive action against Iran over the next two to three weeks and offered no concrete plans to reopen the Strait of Hormuz. Crude prices briefly fell from their best levels after a report said Iran is drafting a protocol with Oman to monitor traffic through the Strait of Hormuz.
Crude price surged on Thursday after President Trump on Wednesday evening vowed to escalate the war in Iran over the coming weeks and offered no plan to reopen the Strait of Hormuz. Without a resumption of flows through Hormuz, there’s little sign that the pressure on oil markets will abate.
Crude prices fell briefly from their best level on Thursday before continuing higher after a report from Iran’s state-run IRNA said that Iran is drafting a protocol with Oman to monitor traffic through the Strait of Hormuz, citing Iranian Deputy Foreign Minister Kazem Gharibabadi.
The Strait of Hormuz remains essentially closed, limiting global oil supplies and boosting crude prices. Persian Gulf oil producers have been forced to cut production by roughly 6% as local storage facilities reach capacity. The Strait of Hormuz normally handles a fifth of the world’s oil. The UAE is preparing to help the US and other allies open the Strait of Hormuz by force and is lobbying for a United Nations Security Council resolution authorizing such action. The International Energy Agency warned that even if the war were to end within a few weeks, it would still take time for normal flows through Hormuz to resume, as some energy infrastructure has been damaged and is facing lengthy repairs.
Concerns that the Iran war could widen throughout the Middle East are also bullish for crude prices. Saudi Arabia agreed to give the US military access to King Fahd Air Base, and the UAE said Iranian nationals aren’t allowed to enter or transit the country. Iran’s Middle Eastern neighbors are growing frustrated with Iran, which has responded to US and Israeli attacks by hitting targets in several nearby nations.
Energy prices remain supported after the International Energy Agency said last Monday that more than 40 energy sites across nine countries in the Middle East have been “severely or very severely” damaged, potentially prolonging disruptions to global supply chains once the war in Iran ends.
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 40% higher than a year ago, due to blockades and sanctions on Russian and Iranian crude. Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose by +47% w/w to 136.13 million bbl in the week ended March 27.
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 eight 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 March 27 were +1.4% above the seasonal 5-year average, (2) gasoline inventories were +4.2% above the seasonal 5-year average, and (3) distillate inventories were -2.2% below the 5-year seasonal average. US crude oil production in the week ending March 27 was unchanged at 13.657 million bpd, mildly below the record high of 13.862 million bpd posted in the week of November 7.
Baker Hughes reported Thursday that the number of active US oil rigs in the week ended April 3 rose by +2 to 411 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.
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. This article was originally published on Barchart.com
