November WTI crude oil (CLX23) this morning is down -1.04 (-1.231%), and Nov RBOB gasoline (RBX23) is down -0.70 (-0.32%).
Nov WTI crude oil and gasoline prices this morning extended Wednesday's sharp losses, with crude falling to a 5-week low and gasoline dropping to a 9-1/2 month low. Crude prices are sliding on concern that slowing global growth will erode energy demand and consumption. A weaker dollar today is limiting the downside in energy prices.
Global economic news today was mixed for energy demand and crude prices. On the bearish side, German Aug exports fell -1.2% m/m, weaker than expectations of -0.6% m/m. Also, the German Sep S&P construction PMI fell -2.2 to 39.3, the weakest level since the data series began in 2020. Conversely, U.S. weekly initial unemployment claims rose +2,000 to 207,000, showing a stronger labor market than expectations of 210,000.
Weakness in the crude crack spread is bearish for crude prices. Today's crack spread fell to a 20-month low, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.
A supportive factor for crude was today's action by Saudi Arabia's state-owned Saudi Aramco to raise the price of its Arab light crude to Asian customers for November delivery by 40 cents per bbl, above expectations of 20 cents.
The outlook for tighter global fuel supplies is supportive for crude. Late last month, 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. Saudi Arabia and Russia on Wednesday announced that they will maintain 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 -11% w/w to 82.52 million bbl as of Sep 29.
The U.S. and Iran announced late last month 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.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Sep 29 were -4.5% below the seasonal 5-year average, (2) gasoline inventories were +1.1% above the seasonal 5-year average, and (3) distillate inventories were -12.8% below the 5-year seasonal average. U.S. crude oil production in the week ended Sep 29 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 29 fell -5 to a 19-3/4 month low of 502 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.
