Oil up as Trump vows more attacks on Iran; crude in SPR hits lowest since Aug 2023

Oil prices advanced on Wednesday, after President Donald Trump expressed impatience over Iran’s delay in signing a peace deal and said the U.S. would "hit them hard" for a second straight day.

Trump also revealed a "secret mission" by the U.S. military to help tankers and ships cross the critical Strait of Hormuz, and said it had resulted in more than 100 million barrels of oil getting out of the vital waterway.

Additionally, economic data showed a surge in U.S. energy inflation in May. A separate report showed U.S. emergency oil stockpiles had slid to their lowest level in nearly three years.

At 14:51 ET (18:51 GMT), Brent crude futures expiring in August, the global oil benchmark, rose 2.1% to $93.33 a barrel, while U.S. West Texas Intermediate crude futures expiring in July added 2.4% to $90.27 a barrel.

Trump vows more attacks against Iran, says Tehran delaying deal

Hopes for a peace deal to end hostilities in the Middle East took a big hit on Wednesday after the U.S. military launched "self-defense" strikes against Iran, following a promise by Trump that Washington would respond to the shooting down of an American helicopter that was patrolling over the Strait of Hormuz. Iran, for its part, has not claimed responsibility for the downing of the helicopter.

The president then on Thursday morning said Iran had taken too long to negotiate a peace deal and "will have to pay the price." He reiterated that "much of" Iran’s military had been eradicated by a joint U.S.-Israeli campaign that is now in its fourth month, claiming that the "Bully of the Middle East is DEAD!!!"

Later, at the White House, Trump further ratcheted up his rhetoric.

"We hit them hard yesterday and we’re going to hit them again hard today... And we’ll see what happens with the deal. We were really close to a deal — but they keep tapping us along," Trump told reporters.

"Iran very simply cannot have a nuclear weapon. And they won’t. And they’ve agreed to that. All they have to do is they have to start signing a paper. It’s fully negotiated. We have a fully negotiated but they’re tapping and tapping and I said ’all right let’s give them a couple more days.’ They’re tapping. Because it’s a meaningful paper," the president added.

’Secret’ Hormuz mission

Trump also told reporters that the U.S. had been helping ships cross the Strait of Hormuz without Iran’s knowledge. 

"Did you know we’ve been taking out millions of barrels of oil? Nobody knows it. You know who doesn’t know about it? Iran — until right now. We took out, the other night, 22 ships. Late at night, with no lights," he said.

The president later provided more details in a new social media post, saying he had directed the U.S. military last month to carry out the "secret mission."

"Today, I am pleased to announce that this effort has resulted in more than 100 MILLION Barrels of Oil making its way through the Strait, and into the Open Market. More than 200 Commercial Ships have safely traveled through the Strait. This wildly successful effort is because the UNITED STATES of AMERICA CONTROLS the Strait of Hormuz — NOT Iran," Trump said.

However, Energy Secretary Chris Wright in a congressional hearing said he was not aware of the U.S. taking out millions of barrels of oil out of the strait.

The continued shuttering of the strait has led to the biggest oil supply disruption in the world and surging oil prices, which in turn have caused an inflationary shock.

Annual energy consumer inflation highest since August 2022

Speaking of inflation, on Wednesday, the U.S. consumer price index (CPI) report for May showed a big jump in annual headline consumer inflation. However, over 60% of that increase was due to energy. Moreover, on a M/M basis, the headline figure decelerated from April. After stripping away volatile energy and food prices, core CPI in May inched up from April on a Y/Y basis, but fell slightly on a M/M basis. 

Spiking energy and gasoline prices driven by the ongoing Middle East conflict showed an outsized impact in the CPI report. Energy prices surged 23.5% Y/Y in May, while gasoline soared 40.5%. These were the highest readings since August 2022 and July 2022, respectively.

While the increase in the annual headline number was largely expected due to the impact of the Iran war, traders took positive cues from the milder core indicators. Notably, core goods inflation, or the prices paid by consumers for commodities excluding food and energy, slipped 0.1% on a M/M basis.

Crude stockpiles in SPR keep depleting

Elsewhere, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell by 7.2 million barrels in the week ending June 5, according to data from the Energy Information Administration (EIA), significantly higher than the consensus of a draw of 3 million barrels.

Total crude oil inventories now stand at 426.5 million barrels, or about 5% below the five-year average for this time of the year. The U.S. has drawn upon its ample inventories during the Middle East conflict to help fill in the supply glut created by the closure of the Strait of Hormuz, with exports hitting record highs since the start of the war.

But the U.S. has also had to draw upon its Strategic Petroleum Reserve (SPR) to help offset the oil price shock from the Iran war. The latest EIA data showed crude oil inventories in SPR were now at 349.2 million barrels, the lowest level since August 2023.