January WTI crude oil (CLF24) on Friday closed up +1.86 (+2.68%), and Jan RBOB gasoline (RBF24) closed up +0.0498 (+2.49%).
Crude oil prices Friday rebounded from Thursday's 5-1/4 month low and posted moderate gains. Crude rallied Friday after better-than-expected U.S. economic reports on Nov payrolls and Dec consumer sentiment reduced recession fears and bolstered the outlook for a soft landing, a positive factor for energy demand and crude prices. Also, plans by the U.S. to refill its strategic petroleum reserve are supportive of crude. On the negative side was Friday's rally in the dollar index (DXY00) to a 3-week high.
Crude prices found support Friday after the U.S. Energy Department issued a solicitation to buy as much as 3 million bbl of sour crude for delivery in March to refill the strategic petroleum reserve. That comes on top of a previous tender to buy the same amount for February. The Energy Department said it will hold monthly tenders to buy oil to refill the reserve through at least May of next year.
Friday's global economic news was mixed for crude demand and prices. On the bullish side, U.S. Nov nonfarm payrolls rose +199,000, stronger than expectations of +185,000. Also, the U.S. Nov unemployment rate fell -0.2 to a 4-month low of 3.7%, showing a stronger labor market than expectations of no change at 3.9%. In addition, the University of Michigan U.S. Dec consumer sentiment index rose +8.1 to a 4-month high of 69.4, stronger than expectations of 62.0. On the negative side, Japan's Q3 GDP was unexpectedly revised lower to -2.9% (y/y annualized) from -2.1%, weaker than expectations of -2.0% and the steepest pace of contraction since the pandemic.
Signs of increasing U.S. crude exports are negative for prices as ship-tracking firms Kpler and Vortexa project that U.S. crude exports will soon reach a record 5.7 million bpd.
A bearish factor for crude was Tuesday's action by Saudi Arabia to cut the price of its flagship Arab light crude to Asian customers for January delivery by 50 cents to $3.50 a barrel more than the benchmark, the first cut in prices since June but below expectations of a -$1.05 a barrel cut in prices.
Last Thursday, 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 cuts may only be voluntary.
Saudi Arabia said last Thursday 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 last Thursday that 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.
The rift between Angola and other OPEC+ members remains and is a bearish factor that signals more infighting among members. Angola OPEC governor Pedro said last Thursday that his country rejects OPEC's quota and "Angola will produce above the quota determined by OPEC." Angola is Africa's second-largest crude producer, and OPEC governor Pedro said his country will pump 1.18 million bpd in January, above the 1.11 million quota set out by OPEC.
A supportive factor for crude was Tuesday's comment from Russian Deputy Prime Minister Novak, who said, "In case the current actions are not enough, OPEC+ countries will take additional steps to avoid speculations and volatility." On Monday, Saudi Energy Minister Prince Abdulaziz bin Salman said Saudi Arabia's crude production curbs could "absolutely" continue past March of next year.
Oil prices are supported by concern that attacks on oil tankers in the Middle East may disrupt crude oil supplies. The U.S. Central Command said there were four attacks by missiles and drones against three separate commercial vessels on Sunday operating in international waters in the Red Sea. Iranian-backed Houthi rebels claimed responsibility for the attacks after they issued a threat against ships with ties to Israel last month, calling them "legitimate targets."
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 -24% w/w to 68.62 million bbl as of Dec 1.
An increase in Russian crude exports is bearish for oil prices. Tanker-tracking data monitored by Bloomberg shows refined fuel shipments climbed to 2.2 million bpd in November, roughly +164,000 bpd higher than in October.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Dec 1 were right on the seasonal 5-year average, (2) gasoline inventories were -0.5% below the seasonal 5-year average, and (3) distillate inventories were -11.6% below the 5-year seasonal average. U.S. crude oil production in the week ending Dec 1 fell -0.8% m/m to 13.1 million bpd, just below the previous week's record high of 13.2 million bpd.
Baker Hughes reported Friday that active U.S. oil rigs in the week ended Dec 8 fell by -2 rigs to 503 rigs, modestly 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.
