Oil Prices Surge Due to Reinforced U.S. Economy and Persistent Canadian Wildfire Impact
Today, July WTI crude oil (CLN25) is witnessing a significant surge (+1.90%), currently at +1.19, and July RBOB gasoline (RBN25) is up (+1.27%) by 0.0260.
Driving these gains is a strengthening US labor market, prospective economic growth, and increased energy demand. The April JOLTS job openings unexpectedly spiked, boosting optimism. Moreover, wildfires in Canada have resulted in the closure of around 7% of Canada's total crude oil production, an estimated 350,000 barrels per day (bpd). This disruption is favorable for crude prices, as it tightens the North American supply.
The S&P 500 also saw a surge to a 2-week high, further demonstrating market confidence in the economic outlook and energy demand.
Global energy demand concerns are a worry for oil prices following the revised global 2025 GDP forecast by the Organization for Economic Cooperation and Development (OECD). The GDP is now anticipated to be at 2.9%, down from a March prediction of 3.1%.
Additionally, the China May Caixin manufacturing PMI fell unexpectedly -2.1 to 48.3— appearing weaker than anticipated and marking the sharpest contraction in over 2½ years.
On the flip side, a decline in crude oil stored on tankers could bolster oil prices. According to Vortexa, worldwide crude oil stored on stationary tankers for at least seven days decreased by -28% week-over-week, reaching 72.07 million bbl by May 30.
In the political sphere, President Trump's comments about Russian attacks on Ukraine and potential new sanctions on Russia are positively impacting crude prices. Similarly, Senator Graham has expressed the ability to pass a sweeping sanctions bill against Russia that could impose a 500% tariff on Russian energy products.
However, the near-term upward potential for crude prices could be constrained due to escalating trade tensions between the US and China, which may slow economic activity and dampen demand for crude oil. China's Ministry of Commerce has accused the US of imposing discriminatory and restrictive measures, including new guidelines on AI chip export controls, curbs on chip design software sales to China, and the revocation of student visas.
OPEC+ has agreed to a 411,000 bpd crude production increase for July and plans to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production. This strategy is aimed at reducing oil prices and putting pressure on overproducing OPEC+ members, such as Kazakhstan and Iraq.
Doubts regarding a nuclear deal between Iran and the US are supportive for crude oil prices. Iranian Supreme Leader Ali Khamenei expressed pessimism about negotiations with the US, advising the Trump administration to avoid needless talk. Meanwhile, President Trump hinted at potential consequences for Iran if it doesn't swiftly accept a US proposal over its nuclear program.
The US has also imposed sanctions on an international network that facilitated the shipment of millions of barrels of Iranian oil to China, which is a positive factor for crude oil prices.
Furthermore, the U.S. State Department's sanctions on Russia's oil industry may restrict global oil supplies, potentially contributing to a rise in crude prices. The total exports of Russian oil products in March reached a 5-month high of 3.45 million bpd, but a weekly vessel-tracking showed a -90,000 bpd drop in Russian crude exports for the week ending May 18.
In addition to these factors, the latest EIA report indicates a decrease in US crude oil inventories (-6.2% below the seasonal 5-year average) and a fall in the number of active US oil rigs to a 3-1/2 year low of 461 rigs according to Baker Hughes.
The strengthening US labor market, prospective economic growth, and increased energy demand, as evidenced by the surge in July WTI crude oil and July RBOB gasoline prices, are driving gains in the oil-and-gas industry. The potential new sanctions on Russia, imposed by the U.S. and expressed by Senator Graham, could also positively impact crude prices by imposing a 500% tariff on Russian energy products, affecting the finance sector of the energy business.
