Happy Wednesday!
WTI crude fell to about $72 a barrel today — its lowest point since before the Iran war began — as tanker traffic through the Strait of Hormuz kept building and Middle Eastern supply rushed back onto a global market that had been short of barrels for months. Here is what is driving the market today.
The physical oil market is now moving fast. Oman designated two new temporary shipping lanes — one north and one south of the existing route — to help vessels safely exit the Persian Gulf. Three supertankers that had been stranded inside the Strait made it through on Tuesday, and the UN’s shipping agency said it has an evacuation plan underway to help hundreds of additional vessels still waiting to sail. Physical crude cargoes are starting to sell at discounts in multiple markets, a clear sign that supply is outrunning near-term demand — which is exactly what falling prices mean. The war premium in oil has not just unwound; it has reversed.
At the same time, a serious crack appeared in the diplomatic framework today. Trump stated publicly that Iran had agreed to nuclear inspections “into infinity” as part of the peace negotiations. Iran’s side flatly denied ever making that concession, saying no such commitment was given. That is not a small disagreement over wording — nuclear inspections are the core issue the 60-day ceasefire window was supposed to resolve. The Wall Street Journal described the current dynamic as “US-Iranian trash talk disrupting peace negotiations.” Adding to the political complexity, both the US Senate and the House passed a war powers resolution to halt military action against Iran, a rare bipartisan rebuke of Trump that signals restlessness in Congress even as the ceasefire holds.
The government’s weekly oil inventory report, released today, confirmed that crude supplies remain stretched even as product stockpiles start to recover. Commercial crude inventories fell another 6.1 million barrels last week, bringing stocks to 412.1 million barrels — about 7% below the five-year average for this time of year. Crude imports did tick up to 5.6 million barrels a day as Gulf supply begins flowing back, and refineries kept running hard at 96.1% of capacity. On the product side, the news was more encouraging: gasoline stocks rose 2.1 million barrels and distillates climbed 3.1 million barrels, though both remain well below seasonal norms — gasoline at 5% under the five-year average and distillates at 10% under. Four-week demand data showed total petroleum product consumption running 2.1% above last year’s pace, though motor gasoline demand is actually tracking 3% below last year — a sign that months of elevated pump prices may have trimmed some driving habits.
On retail prices, gasoline averaged $3.906 a gallon Wednesday morning according to GasBuddy — down more than 14% from May’s peak, and diesel fell below $5 a gallon for the first time since mid-March. Both are welcome moves. But Trump pointed out that prices are still significantly higher than the $2.764 per gallon recorded in January, before the war began, and called out the gap between falling crude prices and still-elevated pump prices. He said Wednesday he has instructed the Department of Justice to investigate oil companies for “gouging” customers by not passing through the full decline in crude costs.
The shipping market is reflecting just how frenzied the race to move Persian Gulf oil has become. One supertanker was provisionally booked to transport a cargo from the Gulf to India at a freight rate nearly nine times the normal benchmark cost. Ships are in short supply relative to the sudden spike in demand for Gulf loadings, and anyone who wants barrels in a hurry is paying a steep premium to get them.
Russia’s energy situation continued to deteriorate. Two Ukrainian drone strikes this month have put Moscow’s main oil refinery offline, and industry sources said Wednesday it will likely remain shut for at least six months. That refinery is the primary fuel supplier to the Moscow region. With the shutdown driving shortages across the country, the Russian government is now considering banning diesel exports to keep supply at home and is weighing fuel imports to address critical shortages in Crimea, where gasoline sales to the public have already been suspended.
In a glimpse at how the broader oil world is adapting to the post-war moment, Brazil’s Petrobras and Mexico’s Pemex announced a non-binding agreement to cooperate on oil exploration, production, and refining. Petrobras is looking to extend its growth beyond Brazil’s offshore fields, and Pemex wants a partner to help it find new production after decades of declining output. The Gulf of Mexico, where deep salt formations similar to Brazil’s productive offshore geology exist, is the focus of the potential collaboration. It’s an early-stage agreement, but it speaks to how producers everywhere are repositioning for the years ahead.
With WTI at its lowest since the war started, the biggest risk now is diplomatic. The nuclear inspection dispute that surfaced today has the potential to derail the 60-day window before it produces anything permanent. Markets have largely priced in a smooth path back to pre-war supply — if that assumption starts to crack, prices could snap back in a hurry. Watch the tone of US-Iran communications closely over the next few days.
Thank you and have a great rest of your day!
Best regards,
Jon Crawford
Sources: Bloomberg, Reuters, Wall Street Journal
