Crude oil rallies as US-Iran tensions tighten global supplies

June WTI crude oil (CLM26) closed up 4.20% on Friday, marking a 1.5-week high, while June RBOB gasoline (RBM26) rose 2.67%. The sharp rally in energy markets was driven by the collapse of peace negotiations between the United States and Iran, which has kept the Strait of Hormuz effectively closed and tightened global oil supplies. The strait is a critical chokepoint, with approximately one-fifth of the world’s oil and liquefied natural gas transiting through the waterway.

US President Donald Trump described Iran’s response to his latest peace proposal as a "piece of garbage" and stated that the current ceasefire is on "life support." Trump added that "Iran will make a deal or be decimated," while indicating that the US may restart operations to guide commercial ships through the Strait of Hormuz with naval and air support as early as this week. The rejection of proposals has extended a 10-week conflict that continues to disrupt energy flows.

The International Energy Agency (IEA) reported in a monthly update that global observed oil inventories declined by approximately 4 million barrels per day in March and April. The agency warned that the market remains "severely undersupplied" until October, even if the conflict were to end next month. The IEA also noted that more than 80 energy facilities have been damaged during the conflict, with recovery potentially taking up to two years.

Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by about 14.5 million barrels per day due to the disruptions. The firm noted that the current disruption has drawn down nearly 500 million barrels from global crude stockpiles, a figure that could reach one billion barrels by June. Persian Gulf producers have been forced to cut production by roughly 6% as local storage facilities reach capacity.

In a contrasting signal, OPEC+ delegates indicated plans to continue increasing oil quotas over the next few months, aiming to complete the return of halted production by the end of September. The group had already agreed to restore about two-thirds of the 1.65 million barrels per day supply cutback made in 2023. However, actual output remains constrained, with OPEC’s April crude production falling by 420,000 barrels per day to a 35-year low of 20.55 million barrels per day.

Data from Vortexa showed that crude oil stored on tankers stationary for at least seven days fell 33% week-on-week to 103.90 million barrels in the week ended May 8. Meanwhile, US crude oil production rose mildly to 13.71 million barrels per day, and active US oil rigs increased to 415, though these figures remain below recent highs. The outlook for oil prices remains supported by ongoing geopolitical risks, including restrictions on Russian crude exports amid the war in Ukraine.