April WTI crude oil (CLJ26) on Friday closed up by +9.89 (+12.21%), and April RBOB gasoline (RBJ26) closed up +0.0757 (+2.83%).

Crude oil and gasoline prices extended this week’s sharp rally on Friday, with crude soaring to a 2.5-year nearest-futures high and gasoline posting a 1.75-year high.  The ongoing war in the Middle East entered its seventh day on Friday with no sign of resolution.  The Strait of Hormuz remains closed, halting most energy shipments from the Persian Gulf.

Gains in crude accelerated Friday after Qatar’s energy minister told the Financial Times that the war in the Middle East could “bring down the economies of the world,” and predicted that all Gulf energy exporters would shut down production within weeks, driving crude oil prices to $150 a barrel.

Comments from President Trump on Friday also boosted crude prices when he said the US doesn’t want to negotiate an end to the war with Iran, and that “there will be no deal with Iran except unconditional surrender,” fueling concerns the US may be girding for an extended conflict.

The closure of the Strait of Hormuz has halted most energy shipments from the Persian Gulf and is bullish for energy prices.  Iran’s Islamic Revolutionary Guard Corps has warned ships not to sail through the passageway, saying that vessels “could be at risk from missiles or rogue drones.” The closure of the Strait of Hormuz, which handles a fifth of the world’s oil, has forced Gulf producers unable to export their oil to stockpile the crude in storage tanks.  Iraq and Saudi Arabia, OPEC’s largest producers, have curbed crude production as the halt to their exports is filling up their oil storage facilities.  Goldman Sachs estimates the real-time risk premium for crude oil at $18/bbl, corresponding to its estimate of the impact of a six-week full halt to tanker traffic in the Strait of Hormuz.  

Also, damage from an intercepted Iranian drone caused a major fire on Tuesday at the United Arab Emirates’ major oil-trading hub, Fujairah, one of the largest oil storage centers in the Middle East.  In addition, Iranian drone attacks forced Saudi Arabia to shut down its Ras Taura refinery, the country’s largest, which refines 550,000 bpd of crude oil.

In a bearish factor for crude, OPEC+ on Sunday said it will boost its crude output by 206,000 bpd in April, above estimates of 137,000 bpd.  OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has nearly another 1.0 million bpd left to restore.  OPEC’s January crude production fell by -230,000 bpd to a 5-month low of 28.83 million bpd.

Mounting crude supplies in floating storage are a bearish factor for oil prices.  According to Vortexa data, about 290 million bbl of Russian and Iranian crude are currently in floating storage on tankers, more than 50% higher than a year ago, due to blockades and sanctions on Russian and Iranian crude.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days rose by +20% w/w to 105.48 million bbl in the week ended February 27.

An increase in crude exports from Venezuela is also boosting global oil supplies and is bearish for prices.  Reuters reported on February 9 that Venezuelan crude exports rose to 800,000 bpd in January from 498,000 bpd in December.

On February 10, the EIA raised its 2026 US crude production estimate to 13.60 million bpd from 13.59 million bpd last month, and raised its US 2026 energy consumption estimate to 96.00 (quadrillion btu) from 95.37 last month.  The IEA last month cut its 2026 global crude surplus estimate to 3.7 million bpd from last month’s estimate of 3.815 million bpd.  

The most recent US-brokered meeting in Geneva to end the war between Russia and Ukraine ended early as Ukrainian President Zelenskiy accused Russia of dragging out the war.  Russia has said the “territorial issue” remains unresolved with Ukraine, and there’s “no hope of achieving a long-term settlement” to the war until Russia’s demand for territory in Ukraine is accepted.  The outlook for the Russia-Ukraine war to continue will keep restrictions on Russian crude in place and is bullish for oil prices.

Ukrainian drone and missile attacks have targeted at least 28 Russian refineries over the past seven months, limiting Russia’s crude oil export capabilities and reducing global oil supplies.  Also, since the end of November, Ukraine has ramped up attacks on Russian tankers, with at least six tankers attacked by drones and missiles in the Baltic Sea.  In addition, new US and EU sanctions on Russian oil companies, infrastructure, and tankers have curbed Russian oil exports.

Wednesday’s EIA report showed that (1) US crude oil inventories as of February 27 were -2.7% below the seasonal 5-year average, (2) gasoline inventories were +4.4% above the seasonal 5-year average, and (3) distillate inventories were -1.9% below the 5-year seasonal average.  US crude oil production in the week ending February 27 was unchanged w/w at 13.696 million bpd, just below the record high of 13.862 million bpd from the week of November 7.

Baker Hughes reported Friday that the number of active US oil rigs in the week ended March 6 rose by +4 to 411 rigs, just above the 4.25-year low of 406 rigs posted in the week ended December 19.  Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.