Oil Soars To Six-Week Highs Amid Trump Threats, US Production Dip, & 'Tank Bottoms' At Cushing

Oil prices extended their rise this morning to six week highs as fighting between the US and Iran continued around the Persian Gulf (11th straight night of attacks) and threats of a blockade in the Red Sea added to growing uncertainty about the flow of energy from the region.

Secretary of State Marco Rubio said on Wednesday that U.S. forces would continue to attack Iran as long as it tried to exercise control over shipping traffic, which has dwindled in recent weeks.

Yesterday, President Trump and Secretary of War Pete Hegseth threatened to deepen the war effort, including by potentially targeting the Houthis.

Trump further threatened the Iranians this morning, saying on his social media network that if the country attacks any ship in the Strait of Hormuz, “the United States will bomb and destroy ONE BRIDGE OR POWER PLANT, including those located next to, or in, the Capital City of Tehran.”

WTI is back at six-week highs, dragging bond yields higher and seemingly wearing on stocks too. Overnight saw API report an unexpected build in crude but an 'expected' draw in gasoline stocks.

API

• Crude +2.6mm

• Cushing

• Gasoline -1.38mm

• Distillates +1.76mm

DOE

• Crude +2.01mm (-500k exp)

• Cushing -674k

• Gasoline +765k

• Distillates +1.395mm

Crude stocks rose (in line with API's report) but Gasoline stocks rose (against API's reported draw)...

Stocks at the all-important Cushing hub fell again last week, unable to recover from 'tank bottoms'...

Interestingly, crude oil releases from the Strategic Petroleum Reserve re-accelerated last week...

Despite the ongoing rise in the rig count, US crude production dipped last week from record highs...

Next week’s EIA data may be more volatile depending on how hard Tropical Storm Bertha will impact the Gulf Coast. The storm could disrupt port operations and data on imports and exports. Bad weather could also make a dent on fuel demand on the East Coast. 

Crude imports from the Middle East remained at zero for a third week in the seven days to June 17. A couple of ships hauling Saudi crude to the US managed to leave the Persian Gulf during the brief opening of the Strait of Hormuz. But the waterway’s effective closure and the simultaneous threats to ships in the southern Red Sea will likely make further deliveries scarce.

WTI is holding around $88 at six-week highs...

The conflict is widening at a vulnerable time for energy markets.

Oil stockpiles are smaller than they were when U.S.-Israeli strikes on Iran began at the end of February, and Ukrainian attacks have severely damaged Russian refineries, tightening supplies of transportation fuels like diesel and prompting Goldman Sachs to raise a red flag about the potential for $120 Brent if things continue to escalate...

...and worse still, gas prices may go higher...

The $4 threshold is both economically and politically sensitive, as it is where lower-income consumers typically begin cutting discretionary purchases and trading down across gas stations, convenience stores and quick-service restaurants, further weighing on consumer sentiment... and Trump's approval ratings.