March WTI crude oil (CLH24) on Wednesday closed down -1.23 (-1.58%), and Mar RBOB gasoline (RBH24) closed down -7.77 (-3.24%).
Crude oil and gasoline prices on Wednesday gave up early gains and settled sharply lower, with crude falling back from a 2-week high. Crude prices turned lower after weekly EIA crude inventories rose more than expected. Crude prices Wednesday initially moved higher on a weaker dollar and Middle Eastern geopolitical risks with the ongoing war in Gaza and continued attacks on commercial shipping in the Red Sea by Houthi militants.
Gasoline prices have support amid unexpected refinery outages in the U.S. that reduced gasoline supplies. Recent shutdowns at large refineries, including BP Plc's Whiting, Indiana facility and a Phillips 66 unit in Ponca City, Oklahoma, have contributed to tighter U.S. gasoline supplies.
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 Feb 11 fell about -290,000 bpd from the prior week to 3.49 million bpd.
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 bearish factor for crude was a report Sunday from Goldman Sachs Group that said there is a 600,000 bpd downside risk to its forecast for Chinese oil demand in Q4 due to China's macro policy and a recent surge of electric vehicle sales in the country.
Last 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 Feb 3, 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.
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 +0.5% w/w to 84.17 million bbl as of Feb 9.
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 weekly EIA report was mixed for crude oil and products. On the negative side, EIA crude inventories rose by +12.02 million bbl, well above expectations of a +3.35 million bbl build. Also, crude supplies at Cushing, the delivery point of WTI futures, rose +710,000 bbl. On the bullish side, EIA gasoline stockpiles fell -3.66 million bbl, a larger draw than expectations of -1.55 million bbl.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Feb 9 were -2.1% below the seasonal 5-year average, (2) gasoline inventories were -2.2% below the seasonal 5-year average, and (3) distillate inventories were -7.9% below the 5-year seasonal average. U.S. crude oil production in the week ended Feb 9 was unchanged w/w at a record high of 13.3 million bpd.
Baker Hughes reported last 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.
