November WTI crude oil (CLX23) on Tuesday closed up +0.41 (+0.46%), and Nov RBOB gasoline (RBX23) closed down -5.21 (-2.16%).
Nov WTI crude oil and gasoline prices on Tuesday settled mixed, with gasoline falling to a 5-month low. Tuesday's rally in the dollar index (DXY00) to a 10-1/4 month high is negative for energy prices. Crude prices have support on tightness in global crude supplies. Gains in crude were limited, and gasoline fell, as Tuesday's jump in T-note yields to a 16-year high may curb economic growth and energy demand.
Tuesday's U.S. economic news was better than expected and was bullish for energy demand and crude prices after the Aug JOLTS job openings unexpectedly rose +690,000 to 9.610 million, showing a stronger labor market than expectations for a decline to 8.815 million.
Hawkish Fed comments on Tuesday pushed the 10-year T-note yield to a 16-year high, which may weigh on economic growth and energy demand. Cleveland Fed President Mester said, "I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time." Also, Atlanta Fed President Bostic said the Fed still "has a ways to go" on inflation, and he wants to hold interest rates at elevated levels "for a long time."
Weakness in the crude crack spread is bearish for crude prices. Tuesday's crack spread dropped to a 19-month low, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.
The outlook for tighter global fuel supplies is supportive for crude. Late last month, Russia said it would ban gasoline and diesel exports in an attempt to stabilize domestic fuel prices. The ban will take out about 1 million bpd of fuel supplies, or about 3.4% of total global demand according to Vortexa data, and will squeeze supplies further in an already tight global energy market.
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+ is scheduled to meet on Wednesday and is expected to maintain its production cuts. OPEC Sep crude production was little changed, rising +50,000 bpd to 27.97 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 -11% w/w to 82.52 million bbl as of Sep 29.
The U.S. and Iran announced late last month a prisoner exchange and the unlocking of $6 billion of Iranian funds. Improved U.S.-Iran relations could result in the eventual resumption of nuclear talks, with any deal leading to relaxed Iran sanctions and increased Iranian oil exports. According to TankerTrackers.com, Iranian crude exports rose to a 5-year high of 2.2 million bpd during the first 20 days of August, with most of the crude going to China.
The consensus is for Wednesday's weekly EIA crude inventories to climb by +50,000 bbl.
Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Sep 22 were -3.4% below the seasonal 5-year average, (2) gasoline inventories were -2.2% below the seasonal 5-year average, and (3) distillate inventories were -13.2% below the 5-year seasonal average. U.S. crude oil production in the week ended Sep 22 was unchanged w/w at 12.9 million bpd, the most in 3-1/2 years. U.S. crude oil production is modestly below the Feb-2020 record-high of 13.1 million bpd.
Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Sep 29 fell -5 to a 19-3/4 month low of 502 rigs. That is well below the 3-1/4 year high of 627 rigs posted on Dec 2, 2022. Still, U.S. active oil rigs have roughly tripled from the 18-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity from pandemic lows.
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.
