December WTI crude oil (CLZ23) on Tuesday closed down -3.45 (-4.27%), and Dec RBOB gasoline (RBZ23) closed down -0.0682 (-3.05%).
Crude oil and gasoline prices Tuesday sold off sharply, with crude dropping to a 3-1/2 month low and gasoline sliding to a 4-week low. A stronger dollar on Tuesday was bearish for energy prices. Also, a weaker demand outlook sparked fund selling in crude after China's Oct exports fell more than expected, and after hawkish Fed comments curbed speculation the Fed was done raising interest rates.
Tuesday's weaker-than-expected global economic news was bearish for energy demand and crude prices. The U.S Sep trade deficit increased to -$61.5 billion from -$58.7 billion in Aug, wider than expectations of -$59.8 billion and a negative factor for GDP. Also, China Oct exports fell -6.4% y/y, weaker than expectations of -3.5% y/y. In addition, German Sep industrial production fell -1.4% m/m, a bigger decline than expectations of -0.1% m/m.
Fed comments Tuesday dampened speculation the Fed was done tightening monetary policy and were bearish for crude. Fed President Kashkari said that while there have been three months of promising data on inflation, it isn't enough, and "we need to let the data keep coming to us to see if we really have got the inflation genie back in the bottle." Also, Chicago Fed President Goolsbee said policymakers' top priority is returning inflation to its target, and they don't want to "pre-commit" decisions on interest rates. In addition, Fed Governor Bowman said, "I continue to expect that we will need to increase the federal funds rate further to bring inflation down to our 2% target in a timely way."
Sunday's comments from leaders of Saudi Arabia and Russia were supportive of crude as they said they will stick with their oil production cuts of more than 1 million bpd until the end of the year. The full 23-nation OPEC+ coalition will hold a ministerial meeting on Nov 26 to review its crude production policy for 2024.
Crude prices have underlying support from concern that the Israel-Hamas conflict could escalate and disrupt crude oil supplies from the Middle East. Hezbollah's leader said last Friday that Hezbollah had no prior knowledge of the Hamas attack but that "all possibilities are open on our Lebanese front." Hezbollah-supported militants in Lebanon and the Israeli military have been trading sporadic fire in the past several weeks since the Hamas attack.
An increase in Russian crude exports is bearish for oil prices. Tanker-tracking data monitored by Bloomberg shows 3.48 million bpd of crude was shipped from Russian ports in the four weeks to Nov 5, near the highest in four months.
In a bearish factor for crude oil, the U.S. on Oct 18 said it would ease sanctions for six months on Venezuela's oil exports in exchange for steps to ensure the country holds fair presidential elections next year. An easing of sanctions would put additional crude supplies on the global market, with some analysts estimating about 200,000 bpd of additional supplies.
The tightness in the oil market is expected to continue due to the extension of OPEC+ production cuts. Saudi Arabia recently said it would maintain its unilateral crude production cut of 1.0 million bpd through December. The move will hold Saudi Arabia's crude output at about 9 million bpd, the lowest level in three years. Russia also recently announced that it would maintain its 300,000 bpd cut in crude production through December. OPEC Oct crude production was little changed, rising +50,000 bpd to 28.08 million bpd.
A decline in crude in floating storage is bullish for prices. Monday's weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -6.7% w/w to 74.10 million bbl as of Nov 3.
Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Oct 27 were -5.2% below the seasonal 5-year average, (2) gasoline inventories were +2.1% above the seasonal 5-year average, and (3) distillate inventories were -12.2% below the 5-year seasonal average. U.S. crude oil production in the week ended Oct 27 was unchanged w/w at a record high of 13.2 million bpd.
Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Nov 3 fell by -8 rigs to 496 rigs, posting a new 1-3/4 year low. The number of U.S. oil rigs has fallen this year after moving sharply higher during 2021-22 from the 18-year pandemic low of 172 rigs posted in Aug 2020 to a 3-1/2 year high of 627 rigs in December 2022.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
