Looking to the Futures

Crude oil markets sold off significantly yesterday following a drastic overnight spike as traders feared the escalation of the Israel-Iran conflict could disrupt oil supplies. The US targeted three nuclear facilities in Iran over the weekend prompting a response from Iranian forces in Iraq and Qatar. Last month OPEC+ agreed to a crude oil production hike which could lead to additional supply, barring any significant changes in the Middle East. Last week's EIA report was bullish for prices with crude inventories well below the seasonal averages. 

Overnight gains going into Monday's trading sessions were quickly eliminated as oil markets assessed the response to the US strike over the weekend on Iran's nuclear facilities. The US targeted the Fordo, Isfahan, and Natanz sites, which represent three key nuclear facilities in Iran. Yesterday Iran carried out missile strikes on US military bases in Qatar and Iraq in response. Iran's army command said the US has directly entered war and should expect "severe consequences." President Trump stated he would respond with "far greater" force to any retaliation from Iran on US assets. 

One major concern for crude oil markets would be Iran closing the vital Strait of Hormuz. Approximately 20% of the worlds daily crude shipments pass the Strait of Hormuz and its closure could create significant supply constraints. On Sunday, Iran's parliament called for the closure of the Strait, but any closure would first require approval from Supreme Leader Khamenei. 

In the bear camp, OPEC+ agreed to a crude oil production hike, pushing prices lower. On May 31 OPEC+ agreed to increase crude oil production by +411,000 bpd in July following a similar hike in June. Saudi Arabia has indicated we could see similar increases in crude output moving forward, which could continue to drive oil prices lower. This has been viewed as a strategy to punish overproducing OPEC+ countries like Kazakhstan and Iraq. OPEC+ has been gradually restoring production levels after 2 years of production totaling 2.2 million bpd. OPEC+ planned to restore production by late 2025 but it appears the production cut will not be fully replaced until September of 2026. OPEC+ May crude production increased +200,000 bpd to 27.54 million bpd. 

Last Wednesday's EIA report showed US crude oil inventories were -10.2% below the seasonal 5-year average as of June 13^th. US crude oil production was unchanged at 13.431 million bpd as of the week ending June 14^th. 

Last Friday's Baker Hughes report showed the number of active US oil rigs dropped by -1 to 438 rigs in the week ending June 20^th. Vortexa reported that crude oil stored on tankers that have been stationary for at least 7 days dropped by -13% w/w to 79.66 million bbl in the week ending June 20^th.

Looking at the daily chart of the Light Sweet Crude Oil Futures August 2025 (/CLQ25) contract we can see the significant selloff yesterday with a bearish engulfing candle on heavier than average volume. The contract traded below the 200-Day Simple Moving Average and looked to test the 50-Day SMA price point. 

The Daily Technical Summary from Hightower Research shows resistance levels at 75.70 and 77.43 with resistance levels at 72.29 and 70.60. Trading pushed prices well below the two support levels during yesterday’s session. 

According to the CFTC Commitment of Traders report released June 10^th managed money traders increased their long position by +6,381 contracts and decreased their short position by -10,565 contracts. Managed money traders were net long 161,577 contracts.

The 14-Day Relative Strength Index at 57.95% indicates the contract has moved off its overbought levels.

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