February WTI crude oil (CLG24) this morning is down -0.92 (-1.28%), and Feb RBOB gasoline (RBG24) is down -0.93 (-0.44%).
Crude oil and gasoline prices this morning gave up an early advance and turned lower, with crude falling to a 3-week low. Today's rally in the dollar index to a 1-week high is bearish for energy prices. Also, concerns about global energy demand are weighing on prices after U.S. and Chinese economic news disappointed. Crude prices today initially moved higher on the escalation of Middle East tensions after Iran dispatched a warship into the Red Sea after the U.S. Navy said it was fired upon when responding to a distress call from a vessel in the Red Sea.
Weaker-than-global economic news is bearish for energy demand. The U.S. Dec S&P manufacturing PMI was unexpectedly revised lower to a 6-month low of 47.9 versus expectations of an upward revision to 48.4. Also, the China Dec manufacturing PMI unexpectedly fell -0.2 to 49.0, weaker than expectations of an increase to 49.6 and the weakest level in 6 months. In addition, the Dec non-manufacturing PMI rose +0.2 to 50.4, weaker than expectations of 50.5.
An increase in Russian crude oil exports is bearish for crude oil prices. Tanker-tracking data from Vortexa monitored by Bloomberg shows the four-week average of refined fuel shipments from Russia climbed to 2.6 million bpd in the four weeks to Dec 24, up +157,000 bpd from the prior week and the highest seven months.
Geopolitical risks in the Middle East have escalated and are bullish for crude prices. On Sunday, the U.S. Navy sank three Houthi boats in the Red Sea after they fired on U.S. aircraft. Also, Iran dispatched a warship into the Red Sea after the U.S. Navy said it was fired upon when responding to a distress call from a vessel in the Red Sea. The attacks on commercial shipping in the Red Sea have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies. At least thirty merchant ships have been attacked or approached around Yemen by Iranian-backed Houthi militants in the Red Sea since Israel's war with Hamas broke out in October.
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 -16% w/w to 77.39 million bbl as of Dec 29.
A supportive factor for crude was last Monday's projection from the American Automobile Association (AAA) that a record 7.5 million people are expected to fly from Dec 23 to Jan 2, the most since the AAA began tracking the data in 2000.
A bearish factor for crude was the announcement from Angola on Dec 21 that it is leaving OPEC amid a dispute over oil production quotas. Angola is Africa's second-largest crude producer, and the rift between Angola and other OPEC+ members is a bearish factor that signals infighting among members. Other OPEC members may balk at Saudi Arabia's attempt to force all members into a production cut.
On Nov 30, OPEC+ agreed to cut crude production by -1.0 million bpd through June 2024. However, crude prices sold off on the news since no details were provided on how the cuts would be distributed among members, nor how Russia's -300,000 bpd export cut would factor into the new totals. Delegates said the final details of the new accord, including national production levels, would be announced individually by each country rather than in the customary OPEC+ communique. The market was disappointed that the extra cuts in OPEC crude output will be announced by each individual country, which suggests the reductions may only be voluntary.
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 Nov crude production fell -140,000 bpd to 28.050 million bpd.
Last Thursday's EIA report showed that (1) U.S. crude oil inventories as of Dec 22 were -1.9% below the seasonal 5-year average, (2) gasoline inventories were -2.3 below the seasonal 5-year average, and (3) distillate inventories were -9.3% below the 5-year seasonal average. U.S. crude oil production in the week ending Dec 22 was unchanged w/w at a record 13.3 million bpd.
Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Dec 29 rose by +2 rigs to 500 rigs, just above the 1-3/4 year low of 494 rigs from Nov 10. The number of U.S. oil rigs has fallen this year after moving sharply higher during 2021-22 from the 18-year pandemic low of 172 rigs posted in Aug 2020 to a 3-1/2 year high of 627 rigs 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.
