Crude Oil Prices Continue Sharply Lower on Iran Peace Hopes

July WTI crude oil (CLN26) on Friday closed down -2.82 (-3.23%), and July RBOB gasoline (RBN26) closed down -0.0516 (-1.66%).

July WTI crude oil prices on Friday fell by -3.23%, adding to Thursday’s decline of -2.58%.  Crude oil prices fell as reports circulated that an interim US-Iran peace agreement could be signed as early as this weekend, ending the military hostilities, reopening the Strait of Hormuz, and ending the US blockade on Iran and its oil exports.  Negotiations would then begin on the more intractable issues, such as sanctions against Iran, the release of $24 billion of frozen Iranian assets, and the resolution of Iranian nuclear issues.  However, Iran said its leaders still need to make a final decision on the proposed interim peace deal.

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Oil prices fell sharply starting on Thursday after President Trump said he canceled planned military strikes against Iran, citing “discussions” with the Iranian leadership.  He added that a “time and place of the signing” of a negotiated end to the war would “be announced shortly.”

Crude prices were also pressured by claims of rising oil flows through the Strait of Hormuz.   President Trump said the US military had supported the passage of “more than 200 commercial ships” through the Strait of Hormuz, resulting in “more than 100 million barrels of oil” making it to market. 

The outlook for higher US crude output is negative for oil prices.  The Department of Energy (DOE) on Tuesday raised its US 2026 crude production estimate to 13.72 million bpd from a May estimate of 13.65 million bpd.

Crude prices have support from the continued Ukrainian drone attacks on Russian oil infrastructure.   Last Monday, Bloomberg reported that Russia banned jet fuel exports after Ukraine’s attacks on Russian oil refineries reached a record high in May.  Russia’s refinery runs in May fell -13% y/y to 4.58 million bpd, the lowest since October 2009, according to data from Bloomberg. US and EU sanctions on Russian oil companies, infrastructure, and tankers have also curbed Russian oil exports.

The International Energy Agency (IEA) said in a monthly report released in May that global oil inventories declined at about 4 million bpd in March and April, and that the market will remain “severely undersupplied” until October, even if the conflict ends soon. Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by about 14.5 million bpd, and that the current disruption has drawn down nearly 500 million bbl from global crude stockpiles, which could hit a billion bbl by June.

As a bearish factor for crude, OPEC delegates said on May 14 that the cartel aims to continue a series of oil quota increases over the next few months, completing the return of halted oil production by the end of September.  The group already formally agreed to restore about two-thirds of the 1.65 million bpd supply cutback it made back in 2023 and said it plans to raise output targets further and to revive the final portion in three more monthly stages.  On May 3, OPEC+ said it will boost its crude output by 188,000 bpd in June after raising production by 206,000 bpd in May, although any production hike now seems unlikely given that Middle East producers are being forced to cut production due to the Middle East war.  OPEC’s May crude production fell by -3.36 million bpd to a 40-year low of 16.33 million bpd. 

Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +1.2% w/w to 86.59 million bbl in the week ended June 5.

Wednesday’s EIA report showed that (1) US crude oil inventories as of June 5 were -5.3% below the seasonal 5-year average, (2) gasoline inventories were -5.9% below the seasonal 5-year average, and (3) distillate inventories were -13.9% below the 5-year seasonal average.  US crude oil production in the week ending June 5 rose +0.7% w/w to 13.799 million bpd, mildly below the record high of 13.862 million bpd posted in the week of November 7.

Baker Hughes reported on Friday that the number of active US oil rigs in the week ended June 12 rose by +2 to an 11-month high of 433 rigs, up from the 4.25-year low of 406 rigs posted in December 2025.  However, the number of US oil rigs remains sharply below the 5.5-year high of 627 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