November WTI crude oil (CLX23) this morning is down -3.88 (-4.35%), and Nov RBOB gasoline (RBX23) is down -12.93 (-5.48%).
Nov WTI crude oil and gasoline prices this morning are sharply lower, with crude falling to a 1-month low and gasoline tumbling to a 9-month low. Today's weaker-than-expected U.S. Sep ADP employment report signals a slowdown in the labor market that is bearish for energy demand and oil prices. Crude prices extended their losses despite an unexpected decline in EIA crude inventories after weakness in U.S. gasoline demand led to an unexpected surge in EIA gasoline supplies.
Global economic news was mixed for energy demand and crude prices. On the bearish side, the U.S. Sep ADP employment change rose +89,000, weaker than expectations of +150,000 and the smallest increase in over 2-1/2 years. Also, Eurozone Aug retail sales fell -1.2% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 8 months.
On the bullish side, the U.S. Sep ISM services index fell -0.9 to 53.6, stronger than expectations of 53.5. Also, U.S. Aug factory orders rose +1.2% m/m, stronger than expectations of +0.3% m/m. In addition, Japan Sep Jibun Bank services PMI was revised upward by +0.5 to 53.8 from the initially reported 53.3.
Weakness in the crude crack spread is bearish for crude prices. Tuesday's crack spread dropped to a 20-month low, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.
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 today 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.
Today’s weekly EIA report is mixed for crude. On the bearish side, EIA gasoline inventories unexpectedly surged +6.48 million bbl versus expectations of a -300,000 bbl draw as U.S gasoline demand in the week ended Sep 29 fell -7.0% w/w to 8.01 million bpd, the lowest in almost nine months. Also, crude supplies at Cushing, the delivery point of WTI futures, rose +132,000 bbl. On the bullish side, EIA crude inventories unexpectedly fell -2.22 million bbl to a 10-month low versus expectations of a +50,000 bbl build. Also, EIA distillate stockpiles fell -1.27 million bbl, a larger draw than expectations of -68,000 bbl.
Today'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.
