November WTI crude oil (CLX23) on Friday closed up +4.78 (+5.77%), and Nov RBOB gasoline (RBX23) closed up +10.03 (+4.63%).
Nov WTI crude oil and gasoline prices Friday rallied sharply, with crude soaring to a 1-week high. Crude prices surged on concern the Israel-Hamas conflict may spread, potentially disrupting Middle East crude supplies. The conflict could widen after the Israeli military urged evacuation of the northern part of Gaza in preparation for a possible ground invasion of the territory.
Crude prices surged Friday after Iran’s foreign minister said that Hezbollah militants could open a new front in the Israeli war if the blockade of Gaza and attacks on civilians continue. Hezbollah said it was “fully prepared” for any action against Israel when “the time comes.”
Strength in the crude crack spread supports crude prices after the crack spread Friday jumped to a 1-1/2 week high. The stronger crack spread encourages refiners to increase their crude purchases and refine the crude into gasoline and distillates.
A negative for crude is the possibility of sanctions on Venezuela being lifted, which could put additional crude supplies on the global market after a Bloomberg report said the U.S. would be willing to lift some oil and banking sanctions on Venezuela in exchange for steps to ensure the country holds fair presidential elections next year.
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. Saudi Arabia and Russia on Wednesday announced that they will retain their crude production cuts until the end of the year. 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 -15% w/w to 70.04 million bbl as of Oct 6, the lowest in 10 months.
Thursday's EIA report showed that (1) U.S. crude oil inventories as of Oct 6 were -3.1% below the seasonal 5-year average, (2) gasoline inventories were +0.2% above the seasonal 5-year average, and (3) distillate inventories were -12.5% below the 5-year seasonal average. U.S. crude oil production in the week ended Oct 6 rose +2.3% w/w to a record high of 13.2 million bpd.
Baker Hughes reported Friday that active U.S. oil rigs in the week ended Oct 13 rose by +4 to 501 rigs, recovering slightly from the prior week's 20-month low of 497 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.
