Recap: The oil market posted an inside trading day on Wednesday as the market remained supported by the intensifying hostilities in the Middle East. The U.S. conducted a new wave of strikes against Iran’s coastal defense systems and missile sites on Wednesday, while Iran struck U.S. military targets in the region, including in Bahrain, Kuwait and Jordan. Iran also threatened to shut off more regional energy exports. It is the latest escalation of attacks and counterattacks launched by the two sides as they seek control of the Strait of Hormuz. The crude market traded to a high of $80.93 in overnight trading. However, the market erased some of its gains and posted a low of $78.19 by mid-day, shrugging off the new round of strikes against Iranian military installations and a smaller than expected draw in crude oil stocks of 1.7 million barrels for the week ending July 10th. The market settled in a sideways trading range during the remainder of the session. The August WTI contract ended the session up 26 cents at $79.60 and the September Brent contract settled up 22 cents at $84.95. The product markets ended the session in mixed territory, with the heating oil market settling down 6.6 cents at $3.9483 in light of a 4.6 million barrels build in distillates stocks and the RB market settling up 7.36 cents at $3.3009 in light of a 1.5 million barrel draw in gasoline stocks.
Technical Analysis: The crude market will remain well supported by the escalating tensions in the Middle East as the U.S. launched a second wave of strikes on Iranian targets on Wednesday afternoon. The market will remain supported if there are any further disruptions to shipping through the Strait of Hormuz in light of the recent attacks on tankers transiting the waterway or any disruptions to the Bab el-Mandeb Strait, which is another vital energy artery at risk amid threats made by Houthi rebels. The oil market is seen finding resistance at $80.93, $81.27 to $81.68, $83.34, $85.61 and $91.62. Meanwhile, support is seen at $78.19, $77.84, $72.61, $70.77, $68.58, $67.82 and $67.04.
Fundamental News: Bloomberg reported that a handful of vessels traveled through the Strait of Hormuz on Wednesday, hours after the U.S. resumed a naval blockade of Iran and following an increase in attacks on ships. According to ship-tracking data, a U.S.-sanctioned supertanker laden with Iranian oil sailed outbound into the Gulf of Oman, before coming to a stop not long after exiting the strait.
Goldman Sachs estimated that Gulf exports recovered to more than 80% of pre-war levels after the U.S.-Iran memorandum of understanding in June but fell back below 50% or about 11 million bpd, over the last week. The bank said Brent could exceed $110/barrel in the fourth quarter this year if Gulf export recovery continues to stall.
U.S. President Donald Trump said he still believes that Russian President Vladimir Putin is ready to make a deal to end the war in Ukraine soon, despite continued attacks and some indications Russia was likely to escalate the conflict.
IIR Energy said U.S. oil refiners are expected to shut in about 200,000 bpd of capacity in the week ending July 17th, increasing available refining capacity by 70,000 bpd. Offline capacity is expected to fall to 89,000 bpd in the week ending July 24th.
The Federal Reserve said in its latest “Beige Book” report that U.S. economic activity increased slightly in recent weeks, employment rose, and companies and households indicated that inflation may have improved. The economy is expected to continue to expand in the coming months but several districts noted elevated uncertainty in the outlook for fuel costs.
Early Market Call – as of 8:30 AM EDT
WTI – Aug $80.45, up 21 cents
RBOB – Aug $3.3505, up 4.8 cents
HO – Aug $4.0037, up 1.87 cents
