October WTI crude oil (CLV23) on Tuesday closed -0.28 (-0.31%), and Oct RBOB gasoline (RBV23) closed -3.98 (-1.48%).
Oct WTI crude oil prices on Tuesday climbed to a new 10-1/2 month high on the nearest-futures chart, extending the rally seen in the past three months driven by expectations for a tight supply outlook through year-end. However, crude oil prices fell back later in the session on long liquidation pressure and some concern about the global economy. Tuesday's U.S. housing starts report showed a -11.3% decline, and the OECD cut its global 2024 GDP forecast to +2.7% from +3.0%.
Oil prices have support from forecasts last week by the International Energy Agency (IEA) and OPEC that the global oil market will be in deficit through year-end. OPEC last Tuesday projected the global oil market may experience a shortfall of 3.3 million bpd in the fourth quarter, the tightest oil market in more than ten years. Also, the International Energy Agency (IEA) last Tuesday projected the global oil market faces a deficit of about -1.2 million bpd in the second half of this year as oil supply cuts by Saudi Arabia and Russia create a "significant supply shortfall."
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. Russian crude oil shipments in August dropped to 2.28 million bpd, down -9% m/m and the lowest daily average in eleven months.
Oil prices were undercut Monday when Saudi Energy Minister Abdulaziz bin Salman Al Saud said the "the jury is still out" on Chinese oil demand. Also, Saudi national oil company Aramco on Monday pared its outlook for longer-term 2030 oil demand to 110 million bpd, versus the 125 million bpd it expected in 2010. The IEA is projecting lower 2030 demand of 105 million bpd due to the energy transition. Shorter-term Aramco is forecasting record consumption of 103-104 million bpd in the second half of 2023.
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 -8.9% w/w to 83.89 million bbl as of Sep 15.
The U.S. and Iran on Monday announced 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 8 were -2.9% below the seasonal 5-year average, (2) gasoline inventories were -2.5% below the seasonal 5-year average, and (3) distillate inventories were -12.6% below the 5-year seasonal average. U.S. crude oil production in the week ended Sep 8 rose +0.8% w/w to 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 15 rose +2 to 515 rigs, just above the 17-month low of 512 rigs from Sep 1. 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.
