Higher Oil Prices Persist as Middle East Conflict Tightens Physical Market
Oil prices have been rising for over a week as Middle East hostilities continue, contradicting earlier forecasts of a looming glut. The U.S.-Iran ceasefire broke down, paralyzing Strait of Hormuz traffic again. Global oil stocks are declining sharply, with U.S. inventories at Cushing, Oklahoma, near minimum operational levels and the Strategic Petroleum Reserve at its lowest since 1983. The IEA reported a 4.1 million bpd supply rebound in June, but production remains 9.4 million bpd below pre-war levels. Fuel markets are particularly tight: Middle East refinery processing is down 20% due to war damage, and Russian refining capacity has been reduced by 25% from drone attacks, leading to a diesel export ban. Gasoline crack spreads have risen to $0.90 per gallon, and gasoline prices are 32% above pre-war levels despite crude being only 18% higher. Analysts warn that demand destruction may be the only way to rebalance prices, but global fuel demand remains resilient.
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