Nov WTI crude oil (CLX24) Tuesday closed up +1.53 (+2.17%), and Nov RBOB gasoline (RBX24) closed up +5.68 (+2.82%).
Crude and gasoline prices posted 1-week highs on Tuesday and settled moderately higher for a second day. Heightened Middle East tensions underpin crude prices due to concern that the escalation of hostilities could disrupt Middle Eastern crude supplies. Crude also has carryover support from Monday when Chinese banks cut interest rates, which may spur economic growth and energy demand. However, Tuesday's rally in the dollar (DXY00) to a 2-1/2 month high limited gains in energy prices.
Crude has had support since Monday when China boosted stimulus measures after Chinese banks cut their benchmark lending rates by a more than expected -25 bp, which may spur economic growth that boosts energy demand in China, the world's second-largest crude consumer.
A decline in crude oil held worldwide on tankers is bullish for prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days fell by -5.4% w/w to 58.8 million bbl in the week ended October 18.
Crude prices have support from the likelihood that Israel will retaliate against Iran for its missile attack on Israel on October 1, which could further escalate hostilities in the Middle East. JPMorgan Chase said that given the low level of global oil inventories, the odds favor a sustained geopolitical premium in crude prices until the conflict between Israel and Iran is resolved.
Crude demand in China has weakened and is a bearish factor for oil prices. According to data compiled by Bloomberg, China's total apparent oil demand in Sep fell -6.98% y/y to 14.176 million bpd, and total Chinese oil demand this year (Jan-Sep) is down -3.8% y/y to 13.99 million bpd.
A bearish factor for crude oil is ramped-up crude output in Libya after the resolution of a political standoff that had curbed the country's crude production and exports. On October 13, Libya's National Oil Corp said that Libya's crude production rose to 1.3 million bpd, the most in two months, which boosted global crude supplies.
Crude prices found support after OPEC+ on September 5 agreed to pause its scheduled crude production hike of 180,000 bpd in October and November due to recent weakness in crude prices and signs of fragile global energy demand. However, the Financial Times reported on September 26 that Saudi Arabia is ready to abandon its unofficial oil price target of $100 a barrel to regain its market share and is committed to returning its crude production as planned on December 1. OPEC crude production in September fell -480,000 bpd to an 8-month low of 26.51 million bpd
An increase in Russian crude exports is bearish for crude. Weekly vessel-tracking data from Bloomberg showed Russian crude exports rose by +150,000 bpd to 3.46 million bpd in the week to October 20. Conversely, Russia's Energy Ministry reported last Wednesday that Russia's Sep crude production was 8.97 million bpd, down -13,000 bpd from Aug and just below the 8.98 million bpd output target it agreed to with OPEC+.
The consensus is that Wednesday's weekly EIA crude inventories rose +1.0 million bbl, and gasoline supplies fell -1.9 million bbl.
Last Thursday's EIA report showed that (1) US crude oil inventories as of October 11 were -4.8% below the seasonal 5-year average, (2) gasoline inventories were -3.9% below the seasonal 5-year average, and (3) distillate inventories were -9.8% below the 5-year seasonal average. US crude oil production in the week ending October 11 rose +0.7% w/w to a record 13.5 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ending October 18 rose by +1 rig to 482 rigs, just above the 2-1/2 year low of 477 rigs posted in the week ending July 19. The number of US oil rigs has fallen over the past year from the 4-year high of 627 rigs posted 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.
