April WTI crude oil (CLJ24) on Friday closed down -0.92 (-1.17%), and Apr RBOB gasoline (RBJ24) closed down -2.76 (-1.08%).
Crude oil and gasoline prices on Friday erased an early advance and turned lower on Chinese energy demand concerns. Also, Friday's stock weakness undercut confidence in the economic outlook and weighed on crude prices. Crude prices Friday initially moved higher after the dollar index (DXY00) dropped to a 7-week low.
Crude prices came under pressure Friday after the president of China National Petroleum Corp's Economics & Technology Research Institute said China's oil demand has entered a low-growth phase as greater use of electric vehicles and liquified natural gas will replace about 20 MMT or 10-12% of China's gasoline and diesel consumption this year.
Friday's global economic news was mixed for energy demand and crude prices. On the negative side, the U.S. Feb unemployment rate rose +0.2 to a 2-year high of 3.9%, showing a weaker labor market than expectations of no change at 3.7%. Also, Japan Jan household spending fell -6.3% y/y, weaker than expectations of -4.1% y/y and the biggest decline in nearly three years. On the positive side, German Jan industrial production rose +1.0% m/m, stronger than expectations of +0.6% m/m and the biggest increase in 11 months.
A decline in Russian crude oil exports is supportive of crude oil prices. Tanker-tracking data from Vortexa, monitored by Bloomberg, shows Russian crude exports in the week to March 3 fell about -230,000 bpd from the prior week to 2.78 million bpd, the lowest in five weeks.
Crude has support after OPEC+ announced on Sunday that it will extend its current crude production cuts of about 2 million bpd until the end of June. The group said its crude production cuts will be "returned gradually subject to market conditions" after the second quarter. OPEC Feb crude production rose +110,000 bpd to 26.680 million bpd, a bearish factor for oil prices as Iraq and UAE continue to pump above their production quotas.
A recovery in Russian crude refining from Ukranian drone attacks is negative for prices. Bloomberg calculations show Russia processed 5.44 million bpd of crude during the Feb 15-28 period, more than +4% above levels in the first half of February. Several Russian oil processing and storage facilities have been targeted and damaged by Ukrainian drone attacks but have been repaired and are running near capacity.
A report from Vortexa on Monday weighed on crude prices as it said OPEC+ compliance with crude production cuts is still "questionable." The report said that Russian oil exports were about 500,000 bpd above the OPEC+ commitments, and there are "little indications that Russia is actively cutting either crude production or exports."
Crude prices are supported by concern that the Israel-Hamas war might widen to Lebanon. Hezbollah and Israel have traded fire almost daily since the Israel-Hamas war erupted on Oct 7. Also, the U.S. and UK have engaged in airstrikes against Houthi rebels in Yemen in retaliation for Houthi attacks on commercial shipping in the Red Sea. Attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.
Strong oil-product consumption in India, the world's third largest crude consumer, is bullish for oil prices after India's Jan oil-product consumption rose +8.3% y/y to 20 MMT, the most in 9 months.
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 -2.4% w/w to 68.60 million bbl as of Mar 1.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of March 1 were -1.3% below the seasonal 5-year average, (2) gasoline inventories were -2.5% below the seasonal 5-year average, and (3) distillate inventories were -9.9% below the 5-year seasonal average. U.S. crude oil production in the week ending Mar 1 fell -0.8% w/w to 13.2 million bpd, falling back from the prior week's record high of 13.3 million bpd.
Baker Hughes reported Friday that active U.S. oil rigs in the week ended Mar 8 fell by -2 rigs to 504 rigs, modestly above the 2-year low of 494 rigs posted on Nov 10. The number of U.S. oil rigs has fallen over the past year from the 3-3/4 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.
