Iran Suspends Some Gas Production

CRUDE OIL

August Crude Oil opened above Friday’s high overnight but that was the high of the session so far. The Israel/Iran conflict has extended into its fourth day, with neither side slowing down. Israel has the upper hand, and the market is concerned what Iran will do if it gets desperate, specifically whether they would attempt to block the Strait of Hormuz, through which flows 20% of the world’s crude supply. This could draw the US into the conflict, but is could also alienate their neighbors. War invites uncertainty. The Baker Hughes rig count on Friday showed US oil rigs in operation were down 3 rigs to 439 last week. This was down from 488 rigs a year ago, below the five-year average of 439, and the lowest since October 2021. China’s National Bureau of Statistics reported that crude oil throughput declined by 1.8% in May from a year earlier to the lowest level since Augustas maintenance at both state-owned and independent refineries curbed operations.

NATURAL GAS

The Israel/Iran conflict has reached the natural gas market, with Iran partially suspending gas production at the South Pars field after an Israeli strike caused a fire there on Saturday. Iran shares the field with Qatar, which it calls the North Dome. It is located offshore in southern Iran and is responsible for the most of the gas production there. Iran is the world’s third largest gas producer after the US and Russia. Qatar exports LNG through the Strait of Hormuz, and there are concerns that Iran may attempt to block the Strait in desperation, even if it would be against their economic interest. The Baker Hughes rig count on Friday showed US natural gas rigs in operation were down 1 rig to 113 last week. This was up from 98 rigs a year ago and above the five-year average of 111. The weather forecast showed the warmer than normal  temps centered over the eastern half of the US in the  6-10 and 8-14 day forecasts, with normal and cooler than normal in the western half. Some extreme heat shows up in the eastern Midwest states in the 6-10 day.

PRODUCTS

The product markets are more or less following crude oil and its reaction to the Israel/Iran conflict. The rally in USLD has been more impressive than in RBOB, perhaps because US distillate stocks are the tightest in five years (for this point in the season) while gasoline stocks are middling.

 Interested in more futures markets?  Explore our Market Dashboards here.