October WTI crude oil (CLV23) on Friday closed up +0.61 (+0.68%), and Oct RBOB gasoline (RBV23) closed down -3.46 (-1.26%).
Crude oil and gasoline prices on Friday settled mixed, with crude climbing to a 10-1/4 month high. Dollar weakness Friday was supportive of energy prices. Also, stronger-than-expected economic reports from China, the world's second-largest crude consumer, support energy demand and prices. In addition, crude has carryover support from Tuesday when the International Energy Agency (IEA) and OPEC said the global oil market will be in deficit through year-end. On the bearish side was Friday's slump in stocks, which undercut confidence in the economic outlook and energy demand.
Friday's economic news from China was better than expected and supported energy demand and crude prices. China Aug industrial production rose +4.5% y/y, stronger than expectations of +3.9% y/y and the biggest increase in 4 months. Also, China Aug retail sales rose +4.6% y/y, stronger than expectations of +3.0% y/y.
U.S. economic news Friday was mixed for energy prices. On the bullish side, Aug industrial production rose +0.4% m/m, stronger than expectations of +0.1% m/m. Also, the Sep Empire manufacturing survey general business conditions rose +20.9 to 1.9, stronger than expectations of -10.0. On the bearish side, the University of Michigan U.S. Sep consumer sentiment fell -1.8 to 67.7, weaker than expectations of 69.0.
Crude found support Tuesday after the monthly report from OPEC projected the global oil market may experience a shortfall of 3.3 million bpd in the fourth quarter, the tightest oil market in more than ten years. Also, the International Energy Agency (IEA) on Tuesday projected the global oil market faces a deficit of about -1.2 million bpd in the second half of this year as oil supply cuts by Saudi Arabia and Russia create a "significant supply shortfall."
The global crude market continues to tighten and underpin oil prices after Saudi Arabia last Tuesday 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. Also, last Tuesday, Russia announced it would maintain its 300,000 bpd cut in crude production through December.
A bullish factor for crude oil is a decline in Russian crude shipments. Vessel-tracking data monitored by Bloomberg showed Russian crude oil shipments in August dropped to 2.28 million bpd, down -9% m/m and the lowest daily average in eleven months.
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 -5.8% w/w to 81.02 million bbl as of Sep 8, the lowest in 9 months.
An increase in Iranian crude exports is boosting global supplies and is bearish for oil prices. 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.
A negative factor for crude prices is the progress made in Iran-U.S. relations that could lead to higher crude exports from Iran after Iran said the recent deal with the U.S. on the release of prisoners and frozen Iranian funds could lead to diplomacy in other areas, including its nuclear program. An agreement on Iran's nuclear program could eventually prompt the U.S. and its allies to remove sanctions on Iranian crude exports, boosting global crude supplies.
A decline in crude demand in India, the world's third-biggest crude consumer, is bearish for oil prices. India's July crude oil imports fell -6.3% y/y to 19.3 MMT, the lowest in 8 months.
OPEC crude production in August was little changed, rising +40,000 bpd to 27.82 million bpd, recovering slightly from July's 1-3/4 year low of 27.78 million bpd.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Sep 8 were -2.9% below the seasonal 5-year average, (2) gasoline inventories were -2.5% below the seasonal 5-year average, and (3) distillate inventories were -12.6% below the 5-year seasonal average. U.S. crude oil production in the week ended Sep 8 rose +0.8% w/w to 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 Friday that active U.S. oil rigs in the week ended Sep 15 rose +21 to 515 rigs, just above the 17-month low of 512 rigs from Sep 1. That is well below the 3-1/4 year high of 627 rigs posted on Dec 2, 2022. Still, U.S. active oil rigs are more than triple 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.
