March WTI crude oil (CLH24) on Friday closed up +0.62 (+0.81%), and Mar RBOB gasoline (RBH24) closed down -0.25 (-0.11%).
Crude oil and gasoline prices Friday settled mixed, with crude posting a 1-1/2 week high. A weaker dollar Friday was supportive of energy prices. Also, Friday's rally in the S&P 500 to a record high showed confidence in the economic outlook that is positive for energy demand and crude prices. Crude had carryover support from Thursday when Israeli Prime Minster Netanyahu dismissed the chances for a cease-fire in the Israel-Hamas war.
Strength in the crude crack spread supported crude prices as the crack spread on Friday rose to a 4-1/2 month high. The stronger crack spread encourages refiners to boost their crude oil purchases and refine it into gasoline and distillates.
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.
Thursday's comments from Israeli Prime Minster Netanyahu were bullish for crude prices when he said Israel could achieve complete victory over Hamas within months and rejected any talks about a cease-fire. The continuation of the war threatens to escalate and widen throughout the Middle East, a region that accounts for about a third of the world's oil output.
Geopolitical tensions in the Middle East continue to support crude prices. The U.S. and UK have ramped up airstrikes against Houthi rebels in Yemen in retaliation for Houthi attacks on commercial shipping in the Red Sea. Last month, the U.S. Navy advised vessels to avoid the southern Red Sea. Houthis started attacking ships in the Red Sea in mid-November in support of Hamas in the Israeli-Hamas war and said they won't stop the attacks until Israel ends its assault on Gaza. 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.
Crude prices also have support from Ukrainian drone attacks on Russian refineries and oil storage facilities that have curtailed Russian fuel exports. On Sunday, a drone attack by Ukraine damaged Russia's Lukoil PJSC facility in Volgograd, which processed 289,000 bpd of crude oil in January, or more than 5% of Russia's total crude processing volume. On Jan 25, a drone attack damaged Russia's Rosneft PJSC's major Tuapse refinery on Russia's Black Sea coast. Russia said on Jan 26 that the Tuapse refinery, which processed 180,000 bpd of crude in the first half of January, will be shut down through at least February. In recent weeks, several Russian oil processing and storage facilities have been targeted and damaged by Ukrainian drone attacks, increasing the risks of reducing Russian crude exports.
A negative factor for crude prices was last Monday's Kpler Ltd report that said OPEC+ members are dragging their feet on new crude output cuts. According to Kpler estimates, exports from the seven OPEC+ members engaged in new crude production cuts announced for January have averaged about 15.4 million bpd so far this month, barely changed from December.
A decline in Russian crude oil exports is supportive of crude oil prices. Tanker-tracking data from Vortexa monitored by Bloomberg shows the four-week average of refined fuel shipments from Russia fell to 3.09 million bpd in the four weeks to Jan 28, down -250,000 bpd from the prior week.
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 +8.3% w/w to 73.09 million bbl as of Feb 2.
On Nov 30, OPEC+ agreed to cut crude production by -1.0 million bpd through June 2024. However, a Bloomberg survey on Thursday showed the group cut production by -490,000 bpd in January, below the agreed-upon -1.0 million bpd cut. Meanwhile, on Dec 21, Angola announced it was leaving OPEC amid a dispute over oil production quotas.
Saudi Arabia said on Nov 30 that it would maintain its unilateral crude production cut of 1.0 million bpd through Q1-2024. The move would maintain Saudi Arabia's crude output at about 9 million bpd, the lowest level in three years. Russia also said it will deepen its voluntary oil export cuts by 200,000 bpd to 500,000 bpd in Q1 of 2024. OPEC Jan crude production fell -1.59 million bpd to 26.570 million bpd, a 2-1/2 year low.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Feb 2 were -3.9% below the seasonal 5-year average, (2) gasoline inventories were -0.3% above the seasonal 5-year average, and (3) distillate inventories were -7.2% below the 5-year seasonal average. U.S. crude oil production in the week ended Feb 2 rose +2.3% w/w to 13.3 million bpd and matched its record high.
Baker Hughes reported Friday that active U.S. oil rigs in the week ended Feb 9 were unchanged at 499 rigs, just 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.
