Crude oil prices edged higher on Wednesday, with August WTI crude settling at a gain of 0.26 cents per barrel, as U.S. airstrikes against Iran for a fifth day raised concerns over disruptions to shipping in the Strait of Hormuz. Gasoline prices surged to a seven-week high, rising 2.28%. The rally came despite a bearish weekly inventory report from the EIA, which showed smaller-than-expected draws in crude and gasoline stockpiles.
U.S.-Iran Conflict Intensifies Supply Risks
Prices found support after President Trump pledged to intensify bombardment until Iran ceases attacks on vessels in the Strait of Hormuz. Iran retaliated with missile and drone strikes against Kuwait. The International Maritime Organization warned that crossing the strait is currently too dangerous, and visible transit through the waterway has dropped sharply in recent days. The Strait of Hormuz is a critical chokepoint for global oil flows, and any sustained disruption could significantly tighten supplies.
Ukrainian Drone Strikes Hit Russian Refining
Crude also drew support from ongoing Ukrainian drone attacks on Russian oil infrastructure. Russian crude production fell to 8.928 million barrels per day in June, the lowest in 2.5 years, according to OPEC data. EA Analytics reported that Russian crude-processing rates averaged 3.91 million bpd in the first ten days of July, the lowest in 21 years, due to damage from Ukrainian strikes. Bloomberg noted that Ukrainian forces have hit at least 24 of Russia's 34 largest refineries this year, leading to fuel rationing in about 90% of Russian regions and a government ban on nearly all gasoline, jet fuel, and diesel exports.
Mixed Signals on Global Supply
While supply threats from the Middle East and Ukraine supported prices, other factors pointed to ample global supplies. Russian crude exports rose to a four-week average of 4.13 million bpd through June 28, the highest since the invasion of Ukraine in 2022, as the country diverts more crude abroad due to reduced domestic refining capacity. The International Energy Agency reported that the United Arab Emirates boosted production to an all-time high of 4.1 million bpd in June. OPEC+ also plans to increase output by 188,000 bpd in August, though the actual increase may be limited by war-related disruptions in the Middle East.
EIA Report Shows Smaller Draws
Wednesday's EIA report was bearish for crude and products. Crude inventories fell by 1.69 million barrels, less than the expected 2.1 million barrel draw. Gasoline supplies dropped by 1.5 million barrels, also below the 2.0 million barrel forecast. Distillate stockpiles unexpectedly rose by 4.56 million barrels, versus expectations of a 1.85 million barrel decline. Crude supplies at Cushing, Oklahoma, the delivery point for WTI futures, increased by 430,000 barrels. Despite the smaller draws, inventories remain below the seasonal five-year averages: crude by 6.2%, gasoline by 8.4%, and distillates by 11.1%.
Crack Spreads and Output Outlook
The crude crack spread soared to a record high on Wednesday, which could encourage refiners to increase crude purchases to produce more gasoline and distillates. On the supply side, the U.S. Department of Energy raised its 2026 crude production estimate to 13.78 million bpd, up from 13.72 million bpd in June. Baker Hughes reported that the active U.S. oil rig count held steady at 445, a 13-month high, though still well below the 2022 peak of 627 rigs.