November WTI crude oil (CLX23) on Wednesday closed down -2.48 (-2.88%), and Nov RBOB gasoline (RBX23) closed down -4.83 (-2.11%).
Nov WTI crude oil and gasoline prices Wednesday fell sharply on initial indications the war between Israel and Hamas will have a limited impact on oil flows in the Middle East. Also, Wednesday's U.S. PPI report was stronger than expected, bolstering speculation the Fed will keep interest rates higher for longer, which could dampen economic growth and energy demand.
Crude prices retreated Wednesday after the New York Times reported that U.S. intelligence showed Iran was surprised by Hamas's attack on Israel, which may reduce the chances of additional sanctions put on Iranian oil exports and could prevent Iran and its proxies across the Middle East from being drawn into the conflict.
Another negative for crude is the possibility of sanctions on Venezuela being lifted, which could put additional crude supplies on the global market after a Bloomberg report said the U.S. would be willing to lift some oil and banking sanctions on Venezuela in exchange for steps to ensure the country holds fair presidential elections next year.
Crude has support from expectations for additional Chinese stimulus after Bloomberg reported that China is considering raising its budget deficit for 2023 as the government prepares to unleash a new round of stimulus to help the economy reach the government's 5% growth target.
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 on Wednesday announced that they will retain 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 -15% w/w to 70.04 million bbl as of Oct 6, the lowest in 10 months.
The consensus is for Thursday's weekly EIA crude inventories to fall by -1.4 million bbl.
Last Wednesday'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 Oct 6 fell by -5 to a 20-month low of 497 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.
