November WTI crude oil (CLX26) closed up +0.19 (+0.21%) on Monday, and November RBOB gasoline (RBX26) closed down -0.0297 (-0.93%).
Crude oil and gasoline prices gave up a sharp advance on Monday and settled mixed. Crude prices erased nearly all of an early rally on Monday after a US official said President Trump is willing to give Iran sanctions relief in exchange for concrete progress on the nuclear issue. Also, the decline in the crude crack spread to a 1-month low on Monday weighed on crude. The weaker crack spread discourages refiners from purchasing crude oil and refining it into gasoline and distillates.
Crude prices initially rallied sharply on Monday as hopes faded for an imminent breakthrough to end the war in Iran and reopen the Strait of Hormuz after President Trump rejected Iran’s latest proposals to end the war. The Wall Street Journal reported that US negotiators are pressing Iran to make concessions on its nuclear program to revive the peace talks and placate President Trump on an issue he has made a top priority. The newspaper also reported that Mr. Trump expects to resume the bombing campaign against Iran after the US midterm elections on November 3. In addition, crude prices found support on Monday after Iran-backed Houthi militants in Yemen launched drone and missile attacks against Saudi Arabia over the weekend.
The US and Iran remain at odds over key issues, including control over the Strait of Hormuz. US Secretary of State Rubio said last Wednesday that peace talks with Iran are being impeded by Iran's Revolutionary Guard leaders. Iranian President Pezeshkian said last Wednesday that Iran won’t allow freedom of navigation through the Strait of Hormuz while sanctions and a US blockade remain in place.
Signs of larger oil exports from Saudi Arabia are bearish for crude prices. Tracking data compiled by Bloomberg show Saudi Arabia's crude exports stood at 5.28 million bpd in September, the highest in seven months. Saudi Arabia also said it began exporting oil from its East-West Pipeline on Monday after repairs restored the link damaged by drone strikes earlier this month. The 750-mile-long East-West pipeline, which carries 7 million bpd of crude, was closed earlier this month as a precaution following attacks by Houthi rebels. The pipeline moves oil away from the Persian Gulf toward the Red Sea, where it can be loaded on tankers.
Crude also has support as Yemen’s Houthi rebels target energy facilities in Saudi Arabia, forcing several oil facilities to halt some production. Saudi Arabia said that its crude production in August fell to 6.238 million bpd, the lowest since 1990.
The advances by the Houthi rebels to take territory along the Red Sea in Yemen are also contributing to concerns about tighter oil supplies from the Middle East. Earlier this month, the Houthis captured a pair of islands near the Bab-al-Mandeb Strait. That followed their seizure of Perim Island and the Red Sea port city of Mokha at the southern end of the Red Sea, putting the group in a stronger position to attack ships. Since the closure of the Strait of Hormuz, Saudi Arabia has pivoted to the Red Sea to export most of its oil over the past two months. However, escalating tensions with the Houthis have disrupted that route.
Vitol Group said that global oil markets are continuing to tighten, with the loss of about 2 million bpd from crude exports in the Middle East, and a further 2 million bpd from Russia as a result of Ukraine’s drone attacks. Data compiled by Bloomberg, Kpler and Vortexa showed that Saudi Arabia's Aug crude exports dropped to about 3 million bpd, the lowest amount in 9 years.
Ukraine has intensified drone attacks on Russian oil infrastructure, curbing Russian crude production and exports. According to EA Analytics, Russian crude-processing rates averaged 3.51 million bpd in July, the lowest in 24 years, amid damage to Russian energy infrastructure caused by drone and missile attacks from Ukraine. The attacks on Russian oil infrastructure knocked Russia’s crude production in July to 8.89 million bpd, the lowest in six years, according to secondary source estimates published by OPEC. Meanwhile, Reuters reported on August 28 that Russia’s gasoline production fell to about 80,000 tons a day in August, only 70% of domestic demand, causing shortages across the country.
On the bearish side for crude, the International Energy Agency (IEA) on September 11 warned that high oil prices and restricted oil supply will cause the biggest drop in global oil demand this year since the Covid-19 pandemic. Despite the projected demand drop, the IEA raised its estimate for this year’s global oil deficit to 1.7 million bpd from last month’s 1.3 million bpd estimate due to the restricted supply caused by the US-Iran war. The IEA said the return of a global oil surplus will be delayed until 2027, later than its previous estimate of late 2026.
As a bearish factor for crude, OPEC delegates on August 2 approved their final increase of +188,000 bpd in crude production for September. The group has now restored all 1.65 million bpd of the supply cutback it made in 2023 and said it plans to hold output steady for the rest of the year after the September hike. However, the planned OPEC+ production increases may be difficult to achieve amid persistent US-Iran military attacks in the region. OPEC's Aug crude production fell by -900,000 bpd to 19.91 million bpd.
Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +4.4% w/w to 92.49 million bbl in the week ended September 25.
Last Wednesday's EIA report showed that (1) US crude oil inventories as of September 18 were +2.1% above the seasonal 5-year average, (2) gasoline inventories were -5.6% below the seasonal 5-year average, and (3) distillate inventories were -11.9% below the 5-year seasonal average. US crude oil production in the week ending September 18 fell slightly to 13.939 million bpd, just below the record of 13.947 million bpd from the week of September 4.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ended September 26 rose by +3 and matched the 16-month high of 455 rigs from the week of August 14.
