Israel / Iran Tensions: Oil prices retreated from multi-month highs reached earlier on Friday after Israeli airstrikes appeared to avoid Iranian oil infrastructure. Despite the pullback, markets remain concerned that escalating tensions could disrupt Middle East oil supplies. Analysts and industry sources note that only Saudi Arabia and the United Arab Emirates, among OPEC+ members, possess the capacity to quickly ramp up production potentially by up to 3.5 million barrels per day. Iran currently produces around 3.3 million barrels per day and exports more than 2 million barrels per day of crude and refined products. While there has been no reported impact on regional output or exports to date, fears that Israeli strikes could target Iran’s oil infrastructure, its primary source of revenue, have contributed to continued upward pressure on prices.
U.S. Unemployment – May 2025: According to the Bureau of Labor Statistics, the U.S. unemployment rate held steady at 4.2% in May, unchanged from the prior month and within a narrow range of 4.0% to 4.2% since May 2024. The economy added 139,000 jobs during the month, modestly exceeding consensus expectations of 126,000. However, downward revisions totaling 95,000 jobs over the previous two months mitigate the headline strength. While the labor market continues to show signs of slowing, some analysts have indicated they do not anticipate that the latest data will prompt the Federal Reserve to adjust its current ‘on-hold’ policy stance at the June meeting.
U.S Distillates: According to Reuters, analysts have identified diesel supply as the most vulnerable segment in the wake of escalating conflict in the Middle East. On Friday, Israel launched its largest-ever direct attack on Iran, describing the extensive wave of airstrikes as merely the beginning of its broader campaign. Iran has since responded with retaliatory strikes. The concern over diesel supply stems from the anticipated disruption to medium heavy-sour crude oil production grades that are particularly well-suited for refining into distillate fuels, including diesel and jet fuel. The Middle East serves as a key export hub for these fuels, amplifying the potential impact of the conflict on global markets. The latest U.S. Energy Information Administration (EIA) report showed that combined U.S. inventories of diesel and heating oil stood at 108.9 million barrels as of the week ending June 6, approximately 15% below the five-year seasonal average. However, President Trump has expressed optimism about a potential cease fire agreement between Iran and Israel. Yesterday, Trump stated that he believes peace between the two nations is achievable in the near future.
Market Overview: Markets are mixed this morning, though the dangers of further escalation loom over the G7 meeting of global leaders in Canada, with U.S. President Donald Trump expressing hope that a deal could be done, but with no sign of the fighting subsiding on a fourth day of war. A critical concern arising from the conflict is the potential for disruptions in the Strait of Hormuz, a strategic bottleneck through which approximately one-fifth of global oil consumption flows, equating to over 18 million barrels per day of crude oil, condensates, and refined fuels. While markets remain focus on possible interruptions to Iranian oil production following Israeli strikes on energy infrastructure, the prospect of a blockade or restricted access to the strait has significantly heightened risk sentiment. Such a scenario could trigger a sharp increase in oil prices.
This morning the markets are showing some reprieve as the market slips back retracing some of those gains from Friday, which were the largest intraday moves since 2022. The RSI (Relative Strength Index) is showing that HO futures have been in a strong buy position, reflecting in the 71 to 72 range (black circle bottom of chart). An RSI above 70 is often considered "overbought," suggesting the asset might be due for a price correction, however, with the magnitude of the recent strikes on Iran, the ‘fear of’ any oil disruption can keep the bears and bulls fighting for control of the oil markets. Analysts are expected to remain cautious of factors such as further geopolitical developments and economic data that could impact future price movements. The next level of resistance is $2.50, and the second at $2.6629. The first level of support is the 50% retracement level of $2.3001, with the second at the 38% retracement of $2.2145.
