December WTI crude oil (CLZ23) Friday closed +2.33 (+2.80%), and Dec RBOB gasoline (RBZ23) closed +5.81 (+2.60%).
Crude oil prices Friday rallied on Middle East tensions after the U.S. overnight carried out aircraft strikes on two Iranian-backed facilities in Syria. The U.S. strikes were in response to attacks against U.S. personnel in Iraq and Syria since October 17.
Also, an Israeli defense spokesman said that Israeli forces are "expanding ground activity this evening." Israel, in the past two nights, has launched ground raids into Gaza before withdrawing. The markets are waiting for Israel’s all-out ground invasion, which could spark an expansion of the war to include Hezbollah in Lebanon and possibly other Iranian-backed groups.
Oil prices also found support after Exxon's CEO said that his company sees tight global oil supplies for the next few years because of a lack of investment in fossil fuels. Investment in fossil fuels has been lagging due to industry fears that demand for oil may peak due to the increased sales of electric vehicles and the competitiveness of clean energy.
An increase in Russian crude exports is bearish for oil prices. Tanker-tracking data monitored by Bloomberg shows 3.53 million bpd of crude was shipped from Russian ports in the week ended Oct 22, an increase of 20,000 bpd from the previous week.
In a bearish factor for crude oil, the U.S. last Wednesday said it would ease sanctions for six months on Venezuela's oil exports in exchange for steps to ensure the country holds fair presidential elections next year. An easing of sanctions would put additional crude supplies on the global market, with some analysts estimating about 200,000 bpd of additional supplies.
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. 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 63.54 million bbl as of Oct 20, the lowest in 3-1/2 years.
Wednesday's weekly EIA report was bearish for crude and products. EIA crude inventories unexpectedly rose +1.37 million bbl versus expectations for a -450,000 bbl draw. Also, EIA gasoline supplies unexpectedly rose +156,000 bbl versus expectations of a -1.27 million bbl draw. In addition, crude supplies at Cushing, the delivery point of WTI futures, rose +213,000 bbl.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Oct 20 were -4.8% below the seasonal 5-year average, (2) gasoline inventories were +1.1% above the seasonal 5-year average, and (3) distillate inventories were -12.9% below the 5-year seasonal average. U.S. crude oil production in the week ended Oct 20 was unchanged w/w at a record high of 13.2 million bpd.
Baker Hughes reported Friday that active U.S. oil rigs in the week ended Oct 20 rose by +1 to 502 rigs, recovering a bit more from the 20-month low of 497 rigs posted in the week ended Oct 6. The number of U.S. oil rigs has fallen this year back after moving sharply higher from an 18-year low of 172 rigs posted in Aug 2020 during the pandemic 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.
