US crude oil
On May 10, US crude oil June futures rose 0.3% and closed at $71.36 per barrel—the highest closing level in more than 3.5 years. On the same date, the United States Oil ETF (USO) rose 0.3%. On May 3–10, US crude oil June futures rose 4.3%.
Oil supply and the US exit from Iran nuclear deal
On May 8, President Trump unilaterally decided to withdraw from the Iran nuclear deal. France, Germany, and the United Kingdom decided to continue with the Iran nuclear deal. Earlier, Russia and China wanted support for the Iran nuclear deal.
Based on a survey by S&P Global Platts, President Trump’s decision to impose sanctions on Iran could draw less than 200,000 barrels of oil per day from the global oil supply. Less than 500,000 barrels of oil per day would be taken off by November. However, Saudi Arabia has a spare capacity in excess of 1.5 MMbpd–2 MMbpd (million barrels per day) to stabilize the oil market.
US oil exports could stay elevated because of the recent turn in the Brent-WTI spread. In the trailing week, the Brent-WTI spread widened by $0.9 per barrel. Any fall in Iran’s oil trade could be an advantage for non-OPEC oil producers like the US and Russia. These factors might offset the impact of the sanctions on the global oil supply.
On May 10, natural gas June futures rose 2.8% and settled at $2.81 per million British thermal units. The EIA’s (U.S. Energy Information Administration) natural gas inventory report was released on May 10. The EIA reported a rise of 89 Bcf (billion cubic feet) in natural gas inventories for the week ending May 4—equal to the consensus estimate compiled by S&P Global Platts. In the trailing week, natural gas June futures rose 3.2%. The United States Natural Gas ETF (UNG) rose 2.6% during this period.
In the seven calendar days to May 10, oil and natural gas futures outperformed the commodity complex. Next, we’ll discuss whether the upside in energy commodities helped energy stocks.