November WTI crude oil (CLX23) on Monday closed down -1.97 (-2.17%), and Nov RBOB gasoline (RBX23) closed up +1.27 (+0.53%).
Nov WTI crude oil and gasoline prices on Monday settled mixed. Monday's rally in the dollar index to a 10-month high was bearish for energy prices. Crude prices also fell on the threat of higher interest rates that could slow economic growth and energy demand after Fed Governor Bowman said, "I continue to expect that further interest rate increases will likely be needed to return inflation to 2% in a timely way as high energy prices could reverse some of the progress we have seen on inflation in recent months."
However, Monday's global manufacturing news was better than expected and was bullish for energy demand and crude prices. The U.S. Sep ISM manufacturing index rose +1.4 to 49.0, stronger than expectations of 47.9. Also, the China Sep manufacturing PMI rose +0.5 to a 6-month high of 50.2, stronger than expectations of 50.1.
Comments on Monday from United Arab Emirates Energy Minister Suhail Al Mazrouei supported crude prices since he signaled he favors maintaining OPEC+ crude production cuts by saying the alliance has "the right policy."
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.
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.
