July WTI crude oil (CLN25) is up +4.20 (+6.17%), and July RBOB gasoline (RBN25) is up +0.0825 (-3.85%).

Crude oil prices initially soared by +11% after news that Israel launched a major military strike on Iran, although prices have since fallen back and are currently up about +6%.  The oil markets are concerned Iran may attempt to disrupt oil flows from the Persian Gulf.  About 20% of the world's oil consumption travels through the Strait of Hormuz at the eastern outlet of the Persian Gulf.  

Oil price gains are being limited by the fact that OPEC+ members have excess capacity, from which they could boost oil production in the event of a disruption in supplies from the Persian Gulf.  The International Energy Agency can also coordinate the release of emergency stockpiles if necessary.  Also, there were no reports that Israel's overnight attacks significantly damaged Iran's oil infrastructure.

Israel last night launched a series of military attacks on Iranian nuclear and ballistic missile programs and also killed some top Iranian military commanders and nuclear scientists.  Israel struck some 100 targets in Iran, and Iran responded with an unsuccessful drone attack on Israel.  Israeli Prime Minister Netanyahu said the strikes “will continue for as many days as it takes to remove this threat.”  President Trump said Iran needs to make a nuclear deal with the US “before it is too late” and the next round of attacks will be “even more brutal.”  US-Iranian nuclear talks are scheduled for Sunday, but it remains unclear whether they will proceed.

The Trump administration said the US was “not involved” in the military strikes.  However, the US might be drawn directly into the Israeli-Iranian conflict if Iran tries to block the Strait of Hormuz or Iran attacks US assets in the region, either directly or through proxies.  The US might also aid Israel if Iran responds with widespread attacks on Israeli civilians.  Aside from a potential military conflagration in the Middle East, the markets are worried about the disruption to the global economy from an upward spike in oil prices.

Oil prices continue to be undercut by tariff concerns after President Trump late Wednesday said he intends to send letters to dozens of US trading partners in the next one to two weeks, setting unilateral tariffs ahead of the July 9 deadline that came with his 90-day pause.  Mr. Trump's comments have sparked uncertainty about global trade, which may depress global economic activity and energy demand.  By contrast, reduced US-China tensions were positive for economic growth and energy demand after President Trump on Wednesday said that a trade deal with China was "done," with a plan to revive the flow of sensitive goods between the countries.

Crude prices were undercut last Wednesday after Bloomberg reported that Saudi Arabia is open to additional crude production hikes in a bid to increase its market share.  The report stated that Saudi Arabia wants OPEC+ to increase crude output by 411,000 bpd in August and potentially in September to capitalize on peak summer demand.

An increase in crude oil held worldwide on tankers is bearish for oil prices.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days rose by +9.1% w/w to 81.83 million bbl in the week ended June 6.

Concern about a global oil glut is negative for crude prices.  On May 31, OPEC+ agreed to a 411,000 bpd crude production hike for July after raising output by the same amount for June.  Saudi Arabia has signaled that additional similar-sized increases in crude output could follow, which is viewed as a strategy to reduce oil prices and punish overproducing OPEC+ members, such as Kazakhstan and Iraq.  OPEC+ is boosting output to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production.  OPEC+ had previously planned to restore production between January and late 2025, but now that production cut won't be fully restored until September 2026.  OPEC May crude production rose +200,000 bpd to 27.54 million bpd.

Wednesday's EIA report showed that (1) US crude oil inventories as of June 6 were -8.3% below the seasonal 5-year average, (2) gasoline inventories were -1.9% below the seasonal 5-year average, and (3) distillate inventories were -17.5% below the 5-year seasonal average.  US crude oil production in the week ending June 6 rose +0.1% w/w at 13.428 million bpd, modestly below the record high of 13.631 million bpd from the week of December 6.

Baker Hughes reported last Friday that active US oil rigs in the week ending June 6 fell by -9 to a 3-1/2 year low of 442 rigs.  The number of US oil rigs has fallen over the past two years from the 5-year high of 627 rigs posted in December 2022.