Recap: The oil market traded lower on Wednesday on progress in U.S.-Iran peace talks. The market posted a high of $93.69 on the opening and continued on a downward trend amid hopes for a framework agreement between the U.S and Iran to end the conflict despite the recent U.S. strikes on Iranian missile sites and vessels that were attempting to lay mines in the Strait of Hormuz. The crude market extended its losses to over $6 as it posted a low of $87.77 early in the morning amid the news of a draft framework for a memorandum of understanding. Under the framework, Iran would restore commercial shipping through the Strait of Hormuz to pre-war levels within a month, while the U.S. would withdraw its military forces from Iran’s vicinity and lift its naval blockade of the waterway. The market later bounced off its low and settled in a sideways trading range after the White House said the Iranian report for draft framework is false and President Trump said that while Iran wanted to make a deal, the U.S. was not satisfied with it yet. The July WTI contract settled down $5.21 at $88.68 and the July Brent contract settled down $5.29 at $94.29. The product markets ended the session lower, with the heating oil market settling down 11.71 cents at $3.5975 and the RB market settled down 8.68 cents at $3.1337.
Technical Analysis: The crude market will be driven by the latest headlines regarding the peace deal negotiations between the U.S. and Iran as they remain at odds over several issues. The head of the Iranian Parliament’s national security committee said Iran will not be pushed back by the U.S. rhetoric from its red lines, such as its right to enrich uranium and its possession, authority over the Strait of Hormuz and the removal of sanctions. The oil market is seen finding support at $87.77, $86.76, $86.13, $84.69, $84.28, $82.52 and $77.22. Meanwhile, resistance is seen at $90.85, $92.18, $93.69, $94.43, $94.70 to $94.73, $96.49, $98.55, $99.43, $102.66, $104.45, $104.86 and $105.21.
Fundamental News: U.S. President Donald Trump said his administration may talk with Congress about the possibility of legislating a federal gas tax holiday.
IIR Energy said U.S. oil refiners are expected to shut in about 180,000 bpd of capacity in the week ending May 29th, increasing available refining capacity by 48,000 bpd from the previous week. Offline capacity is expected to fall to 138,000 bpd in the week ending June 5th.
According to Kpler, a cargo of oil from the U.S. Strategic Petroleum Reserve is headed to California this month for the first time ever. California, once a top oil-producing state in the U.S., has in recent years become more dependent on crude imports, including about 230,000 bpd last year from the Middle East. About 460,000 barrels of Bayou Choctaw Sweet crude headed to Chevron’s Richmond refinery in California, while another 50,000 barrels of the same grade discharged at Chevron’s El Segundo refinery.
Flint Hills Resources reported flaring due to operating conditions at its 268,500 bpd Corpus Christi West refinery.
PBF Energy’s 160,000 bpd refinery in Torrance, California experienced an unplanned flaring event.
Dallas Federal Reserve President, Lorie Logan, said the world may need to find a way to get by on less oil and gas if the Strait of Hormuz remains closed much longer due to the U.S.-Israeli war on Iran. She said “With supplies highly constrained, if shipping through the strait does not soon return to prewar levels, world oil and natural gas consumption could need to fall more meaningfully than it has so far.” She added “The economic consequences would depend on the degree to which end users can switch to other energy sources or use energy more efficiently, versus curtailing economic activity.”
Early Market Call – as of 8:30 AM EDT
WTI – June $90.87, up $1.46
RBOB – June $3.1780, up 2.68 cents
HO – June $3.6348, up 2.29 cents
