May WTI crude oil (CLK24) on Wednesday closed up +0.98 (+1.15%), and May RBOB gasoline (RBK24) closed up +2.60 (+0.94%).
Crude and gasoline prices Wednesday recovered from early losses and posted moderate gains after US intelligence said it believes a major missile or drone strike is imminent by Iran or its proxies against military and government targets in Israel. Iran has said it will launch some type of attack on Israeli assets as revenge for the recent Israel airstrike on Iran's consulate in Syria that killed some top Iranian military commanders. An escalation of hostilities in the Middle East could lead to the disruption of crude supplies from the region.
Crude prices Wednesday initially moved lower, with crude falling to a 1-week low after the dollar index soared to a 4-3/4 month high. Also, today's slump in the S&P 500 to a 3-week low undercuts confidence in the economic outlook, which is bearish for energy demand and crude prices. In addition, Wednesday's weekly EIA crude inventories rose more than expected to a 9-month high.
Reduced crude demand in India, the world's third-largest crude consumer, is negative for oil prices after India's March oil demand fell -0.6% y/y to 21.09 MMT.
Crude has support from the recent Ukrainian drone attacks on Russian refineries that damaged several Russian oil processing facilities, limiting Russia's fuel exporting capacity. Russia's fuel exports in the week to April 7 fell by -450,000 bpd from the prior week to 3.39 million bpd. JPMorgan Chase said it sees 900,000 bpd of Russian refinery capacity that could be offline "for several weeks if not months" from the attacks, adding $4 a barrel of risk premium to oil prices.
Last Friday's action by Saudi Arabia to raise oil prices more than expected is a supportive factor for crude. State-owned Saudi Aramco raised the price of its Arab Light crude to Asian customers for May delivery by +30 cents/bbl, above expectations of +10 cents/bbl.
Crude prices have carryover support from last Wednesday when OPEC+, at its monthly meeting, did not recommend any changes to their existing crude output cuts, which kept about 2 million bpd of production cuts in place until the end of June. However, OPEC crude production in March rose +10,000 bpd to 26.860 million bpd, a bearish factor for oil prices as Iraq and UAE continue to pump above their production quotas.
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 -17% w/w to 65.30 million bbl as of April 5.
The recent strength of Chinese crude oil demand is bullish for prices. Recent government data showed that China processed a record 118.76 MMT of crude in January and February, up +3% from the same time last year. Also, Chinese fuel demand jumped, with expressway passenger volumes 54% higher than 2019 levels, while airlines saw 19% more people than the pre-pandemic peak.
Crude prices have underlying support from the Israel-Hamas war and concern that the war might spread to Hezbollah in Lebanon. Also, 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.
Wednesday's weekly EIA report was mainly bearish for crude and its products. EIA crude inventories rose by +5.84 million bbl to a 9-month high, a much larger build than expectations of +800,000 bbl. Also, EIA gasoline supplies unexpectedly rose +715,000 bbl versus expectations of a -2.3 million bbl draw. In addition, EIA distillate stockpiles unexpectedly rose +1.66 million bbl versus expectations of a -1.38 million bbl draw. A slight positive for crude was the -170,000 bbl decline in crude supplies at Cushing, the delivery point of WTI futures.
Wednesday's EIA report showed that (1) US crude oil inventories as of April 5 were -1.9% below the seasonal 5-year average, (2) gasoline inventories were -2.9% below the seasonal 5-year average, and (3) distillate inventories were -5.1% below the 5-year seasonal average. US crude oil production in the week ending April 5 was unchanged w/w at 13.1 million bpd, below the recent record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ended April 5 rose by +2 rigs to 508 rigs, moderately above the 2-year low of 494 rigs posted on November 10. The number of US 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.
