November WTI crude oil (CLX23) this morning is up +0.51 (+0.57%), and Nov RBOB gasoline (RBX23) is down -1.87 (-0.75%).
Nov WTI crude oil and gasoline prices this morning are mixed, with gasoline dropping to a 3-week low. Concerns that global oil supplies will remain tight for the foreseeable future underpin crude prices. Gains in crude are limited, and gasoline prices fell on today’s rally in the dollar index (DXY00) to a 9-3/4 month high. Also, a slump in the S&P 500 today to a 3-1/2 month low undercuts confidence in the economic outlook and is negative for energy demand and crude prices.
Today's weaker-than-expected U.S. economic news on Aug new home sales and Sep consumer confidence has bolstered concerns the U.S. economy is losing momentum, which is negative for energy demand and crude prices. Aug new home sales fell -8.7% m/m to a 5-month low of 675,000, weaker than expectations of 698,000. Also, the Conference Board Sep U.S. consumer confidence index fell -5.7 to a 4-month low of 103.0, weaker than expectations of 105.5.
Concerns that a worsening of China's property crisis will derail its economy and demand for energy is bearish for crude prices. China Evergrande Group said its subsidiary Hengda Real Estate Group defaulted on a 4 billion yuan ($547 million) debt payment due Monday, and Chinese authorities detained former company executives.
Weakness in the crude crack spread is bearish for oil prices. Today's crack spread fell to a 1-1/2 year low, discouraging refiners from purchasing crude oil to refine it into gasoline and distillates.
Crude prices have carryover support from last Thursday when Russia said it would ban gasoline and diesel exports in an attempt to stabilize domestic fuel prices. The ban will take out about 1 million bpd of fuel supplies, or about 3.4% of total global demand according to Vortexa data, and will squeeze supplies further in an already tight global energy market.
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.
An increase in crude in floating storage is bearish 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 rose +11% w/w to 95.93 million bbl as of Sep 22.
The U.S. and Iran last 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 15 were -2.9% below the seasonal 5-year average, (2) gasoline inventories were -2.7% below the seasonal 5-year average, and (3) distillate inventories were -15.2% below the 5-year seasonal average. U.S. crude oil production in the week ended Sep 15 was unchanged w/w at 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 22 fell -8 to a 19-1/2 month low of 507 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.
