Hormuz Attacks and Hurricane Isaias Underpin Crude Prices
November WTI crude oil (CLX26) closed up +0.36 (+0.39%) on Friday, and November RBOB gasoline (RBX26) closed down -0.208 (-0.63%).
Crude oil and gasoline prices settled mixed on Friday. Crude prices shook off early losses and moved higher Friday on concerns about disruptions to Middle East energy supplies after Iran said it targeted a tanker attempting to transit the Strait of Hormuz. Crude prices were also supported Friday as a hurricane in the US Gulf curbed some US crude production and could also reduce refining capacity. Dollar strength limited crude gains on Friday. Also, an easing of Middle East tensions weighed on crude oil after President Trump said the US would not attack Iran ahead of next month’s midterm elections, citing “productive discussions” with Iran.
Crude prices rose Friday on concerns about disruptions to Middle East energy supplies after Iran said it targeted an LPG tanker transiting the Strait of Hormuz. Iran has recently ramped up attacks on tankers attempting to transit the Strait of Hormuz. The UK’s Maritime Trade Operations reported on Tuesday that the pace of attacks by Iran has increased in recent days, with nine vessels targeted over the last several days. Iran said action against “violating” vessels will no longer be limited to the Strait of Hormuz, and any ship using an unauthorized route will be pursued throughout the region and “punished.”
Crude oil prices also have support as Hurricane Isaias is curbing US crude output and could potentially reduce refining capacity. The Marine Minerals Administration reported Friday that Hurricane Isaias has shut in 1.459 million bpd of crude production in the Gulf, or 72% of US Gulf crude production, while 500,000 bpd of refining capacity along the Gulf Coast is threatened as the hurricane moves onshore later on Friday.
Surging freight costs to ship crude out of the Middle East due to Iranian attacks on ships in the Strait of Hormuz are bullish for crude prices. The cost to ship oil from the Middle East to China jumped to $1.4 million a day this week, the most on record.
On Tuesday, crude prices dropped to a 1-month low on signs that more crude supplies are leaving the Middle East, easing global supply concerns. Shell Plc said oil flows out of Hormuz have increased to about 80% of prewar levels.
Another bearish factor for crude was Monday’s action by Saudi Aramco to cut the price of its Arab Light crude to Asian buyers by $5 a barrel below a regional benchmark for November delivery, a wider cut than expectations of a $5 a barrel increase. Also, Saudi Arabia said crude supplies through its East-West pipeline had risen to 80% of capacity as of Saturday.
Signs of larger oil exports from Saudi Arabia are bearish for prices. Tracking data compiled by Bloomberg show Saudi Arabia's crude exports stood at 5.28 million bpd in September, the highest in seven months. However, Saudi Arabia said that its crude production in August fell to 6.238 million bpd, the lowest since 1990.
The advances by the Houthi rebels to take territory along the Red Sea in Yemen are also contributing to concerns about tighter oil supplies from the Middle East. Last month, the Houthis captured a pair of islands near the Bab-al-Mandeb Strait. That followed their seizure of Perim Island and the Red Sea port city of Mokha at the southern end of the Red Sea, putting the group in a stronger position to attack ships. Since the closure of the Strait of Hormuz, Saudi Arabia has pivoted to the Red Sea to export most of its oil over the past two months. However, escalating tensions with the Houthis have disrupted that route.
Crude oil prices have support from a Wall Street Journal report last Thursday that said the US is sending a third aircraft carrier strike group and an additional 10,000 troops to the Middle East and that President Trump told aides he expects to resume bombing Iran by the end of November.
The US and Iran remain at odds over key issues, including control over the Strait of Hormuz. Iranian President Pezeshkian recently said that Iran won’t allow freedom of navigation through the Strait of Hormuz while sanctions and a US blockade remain in place.
Ukraine has intensified drone attacks on Russian oil infrastructure, curbing Russian crude production and exports. Ukraine attacked Russian fuel-producing plants 15 times in September and 22 times in August, targeting five of Russia’s ten largest oil-processing plants. According to EA Analytics, Russian crude-processing rates averaged 3.51 million bpd in July, the lowest in 24 years, amid damage to Russian energy infrastructure caused by drone and missile attacks from Ukraine. Russian crude processing rates recovered slightly to 3.98 million bpd in September as damaged refineries struggle to come back online.
On the bearish side for crude, the International Energy Agency (IEA) on September 11 warned that high oil prices and restricted oil supply will cause the biggest drop in global oil demand this year since the Covid-19 pandemic. Despite the projected demand drop, the IEA raised its estimate for this year’s global oil deficit to 1.7 million bpd from last month’s 1.3 million bpd estimate due to the restricted supply caused by the US-Iran war. The IEA said the return of a global oil surplus will be delayed until 2027, later than its previous estimate of late 2026.
On Sunday, OPEC+ agreed to keep oil production quotas unchanged for November. As a bearish factor for crude, OPEC delegates on August 2 approved their final increase of +188,000 bpd in crude production for September. The group has now restored all 1.65 million bpd of the supply cutback it made in 2023 and said it plans to hold output steady for the rest of the year after the September hike. However, the planned OPEC+ production increases may be difficult to achieve amid persistent US-Iran military attacks in the region. OPEC's Aug crude production fell by -900,000 bpd to 19.91 million bpd.
Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +2.6% w/w to 97.00 million bbl in the week ended October 2.
Wednesday's EIA report showed that (1) US crude oil inventories as of October 2 were -0.3% below the seasonal 5-year average, (2) gasoline inventories were -6.4% below the seasonal 5-year average, and (3) distillate inventories were -11.3% below the 5-year seasonal average. US crude oil production in the week ending October 2 rose +0.2% w/w to a new record high of 13.979 million bpd.
Baker Hughes reported Friday that the number of active US oil rigs in the week ended October 9 rose by +6 to a 16.5-month high of 462 rigs.
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 here.