Crude oil market uncertainty continues to reign as the price consolidation period stretches into its fourth week. New sanctions on Russia, Iraqi drone strikes on Kurdish oil fields, the prospect of new tariffs, inflation readings and a stronger US dollar tugged the market in different directions this week.
WTI reached a High of $69.65/bbl on Monday with the weekly Low of $65.40 set on Wednesday despite the reported inventory decline and matching the previous week’s Low. Brent crude had a weekly Low of $67.70/bbl Monday and a High of $71.65 Wednesday. For the past 4 weeks, prices for the US standard have consolidated into a range of $64-69.65.
Meanwhile, the Brent/WTI spread has widened to $3.20. Large increases in refined products were the main bearish signal for the week and could indicate a below-average summer demand occurring. Both grades are lower week-on-week.
Iraq launched a series of drone strikes on key Kurdish oilfields, reducing the output by about 200,000 b/d. Baghdad and the Kurdish government have been in a dispute over the oil production for years and negotiations have not been successful. However, a plan has now been approved for the Kurds to transfer 230,000 b/d to Iraq’s state oil marketer. Meanwhile, Russia’s crude oil production dropped by 3.5% in the January-May period vs. the same timeframe in 2024.
Despite new EU sanctions on Russia including a lower “cap” price, traders realize that Urals will continue to find their way to black markets and foresee no disruption of Russian exports. Even President Trump’s threats of 100% tariffs to be imposed on Russia should they not cease attacks on Ukraine within 50 days are not seen as effecting global oil markets.
It turns out that OPEC+’s output increase for June was actually only 349,000 b/d, lower than the planned 411,000-b/d hike. Maylasia plans to crack down on illegal Iranian “ship-to-ship” crude transfers within its jurisdictional waters after pressure from the US. This could impact the 1.5-1.7 million b/d of Iran’s oil exports bound for China whose refinery activity increased last month to the highest level in almost 2 years.
ExxonMobil is borrowing up to 1.0 million bbl from the US Strategic Petroleum Reserve to replace contaminated crude from the Mars platform in the Gulf of Mexico. Deliveries to the company’s Baton Rouge refinery have been disrupted with product output impacted.
Overall, the market is looking down-the-road and foresees a supply overhang due to the projected output increases coming from the OPEC+ group. However, short-term supply concerns are being reflected in the ‘backwardated’ market whereby, near-term prices are higher than ‘out’ months.
The Energy Information Administration’s (EIA) Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week fell while motor gasoline and distillates rose. The SPR was down 300,000 bbl to 402.7 million bbl.
Housing starts in June rose slightly but were still -0.5% lower than last year. Both consumer sentiment and retail sales increased last month but so did inflation. The June CPI rose +2.7% from a year-ago, up from May’s 2.4% and reflects some initial impacts from the Trump tariffs. The Fed’s preferred gauge of inflation, the PPI, was flat in June compared to May at +2.3% on an annual basis. This was lower than the expected 2.5%. The Dow & S&P are both down on the week while the NASDAQ is positive. The USD has made some gains this week which may continue to hold crude prices back.
Oil, technical analysis