January WTI crude oil (CLF24) on Tuesday closed up +1.55 (+2.07%), and Jan RBOB gasoline (RBF24) closed up +0.0472 (+2.20%).
Crude oil and gasoline prices Tuesday closed moderately higher. Tuesday's slump in the dollar index (DXY00) to a 3-1/2 month low was bullish for energy prices. Crude prices also garnered support Tuesday from dovish Fed comments and stronger-than-expected global economic news that is positive for energy demand. A bearish factor for crude is the ongoing dispute among Saudi Arabia and other OPEC+ members on crude production levels.
Tuesday's global economic news was stronger than expected and bullish for energy demand and crude prices. The Conference Board U.S. Nov consumer confidence index rose +2.9 to 102.0, stronger than expectations of 101.0. Also, the German Dec GfK consumer confidence index unexpectedly rose +0.5 to -27.8, stronger than expectations of a decline to -28.2.
Dovish comments today from Fed Governor Waller suggest he favors pausing Fed rate hikes, which support economic growth and energy demand, when he said, "I am increasingly confident that Fed policy is currently positioned to slow the economy and get inflation back to 2%."
Strength in the crude crack spread is a positive factor for crude prices. The crack spread rose to a 1-week high today, encouraging refiners to boost their crude purchases and refine the crude into gasoline and distillates.
A rift among OPEC+ members regarding crude production levels has delayed the group's monthly meeting until this Thursday and is weighing on crude prices. Saudi Arabia, which has unilaterally cut back its crude output by 1.0 million bpd since July, is now asking other OPEC+ members to reduce their oil production levels, which has prompted pushback from some African oil producers, including Angola and Nigeria. OPEC+ delegates said they were progressing toward a compromise but have yet to clinch an agreement. The rift among OPEC+ members about production levels reduces the likelihood that the group will extend their crude output cuts or make deeper cuts.
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 -2.9% w/w to 86.52 million bbl as of Nov 24.
Increased crude consumption in India, the world's third largest crude consumer, is bullish for oil prices after India's oil product consumption in October rose +3.7% y/y to 19.3 MMT, the highest five months.
An increase in Russian crude exports is bearish for oil prices. Tanker-tracking data monitored by Bloomberg shows 3.24 million bpd of crude was shipped from Russian ports in the week to Nov 26, up +370,000 bpd from the prior week and near the highest in four months.
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.
The consensus is for Wednesday's weekly EIA crude inventories to fall by -50,000 bbl.
Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Nov 17 were -0.5% below the seasonal 5-year average, (2) gasoline inventories were -1.4% below the seasonal 5-year average, and (3) distillate inventories were -13.7% below the 5-year seasonal average. U.S. crude oil production in the week ended Nov 17 was unchanged w/w at a record high of 13.2 million bpd.
Baker Hughes reported last Wednesday that active U.S. oil rigs in the week ended Nov 24 were unchanged at 500 rigs, modestly above the 1-3/4 year low of 494 rigs from Nov 10. 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.
