Oil Prices Dip Amid Economic Indicators and Global Tensions
Crude and Gasoline Prices Decline
On Thursday, January WTI crude oil (CLF25) settled at -0.67 (-0.95%), while January RBOB gasoline (RBF25) declined by -0.0200 (-1.03%). Both crude and gasoline prices saw moderate decreases, with gasoline reaching a 1-1/2 week low. A rally in the dollar index (DXY00) to a 2-year high negatively impacted energy prices. However, crude losses were somewhat offset by positive U.S. economic news, signaling continued energy demand, and favorable updates from Kazakhstan regarding OPEC+ production quotas.
U.S. Economic Data Provides Support
Recent U.S. economic news exceeded expectations, which is a positive sign for energy demand. The Q3 GDP was unexpectedly revised upward to 3.1% (quarter-over-quarter annualized), surpassing predictions that it would remain unchanged at 2.8%. Additionally, weekly initial unemployment claims dropped by 22,000 to 220,000, better than the anticipated 230,000. Leading indicators for November also unexpectedly climbed by +0.3% month-on-month, marking the highest increase in nearly three years, while existing home sales jumped +4.8% month-on-month to an 8-month peak of 4.15 million.
Refiners Hesitant Amid Weaker Crack Spread
The crude crack spread dropped to a 2-3/4 month low, indicating less incentive for refiners to purchase crude oil for gasoline and distillate production, which is a bearish signal for crude prices.
Kazakhstan’s OPEC+ Compliance Aids Crude Stability
Crude prices received some support from Kazakhstan’s commitment to adhere to OPEC+ production limits, which include shelving plans to increase oil production by 190,000 barrels per day in 2024.
Sanctions on Iran and Russia Could Drive Prices Higher
Potential new sanctions on Iranian and Russian crude exports may further constrain global oil supplies and support higher prices. Mike Walz, President-elect Trump’s national security adviser choice, emphasized a “maximum pressure” approach toward Iran, while the Biden administration is contemplating stricter sanctions on Russian crude oil.
Decline in Crude Stockpiles Signals Price Support
A reduction in crude oil held on tankers internationally is a bullish factor for prices. Vortexa reported a 9.9% decline in floating crude oil stockpiles, down to 65.28 million barrels as of December 13.
OPEC+ Adjusts Production Plans
This month, OPEC+ announced a delay in their planned production hike of 180,000 barrels per day from January to April and will unwind output cuts more slowly than previously projected. The UAE also postponed its intended 300,000 barrels per day increase to April. Previously, OPEC+ had aimed to restore 2.2 million barrels per day through monthly increases until late 2025, but this timeframe has now been extended to September 2026. In November, OPEC’s crude production rose by 120,000 barrels per day to 27.02 million barrels per day.
Geopolitical Tensions Maintain Price Support
The ongoing Ukraine-Russian conflict continues to bolster crude prices amid escalating tensions. Russia’s recent missile launches and threats of ballistic missile attacks on Kyiv have heightened concerns about stability in the region.
China’s Slowing Oil Demand Presents Challenges
Conversely, weakening crude demand in China weighs on oil prices. Bloomberg data indicates that China’s oil demand fell by 2.14% year-on-year in November, with a notable decrease of 3.26% year-to-date.
Russian Exports Decline
A drop in Russian crude exports supports overall crude prices. Recent vessel-tracking data from Bloomberg showed that exports fell by 170,000 barrels per day to 2.97 million barrels per day as of December 15.
U.S. Oil Inventory Trends
Wednesday’s EIA report highlighted that U.S. crude oil inventories fell 5.9% below the seasonal 5-year average as of December 13. Gasoline inventories were also down by 3.3% below the average, and distillate inventories decreased by 7.0% below the 5-year average. Additionally, U.S. crude production fell by 0.2% week-on-week to 13.604 million barrels per day, a slight dip from the prior week’s record of 13.631 million barrels per day.
US Oil Rig Count Steady
According to Baker Hughes, the number of active U.S. oil rigs remained unchanged at 482 for the week ending December 13, slightly above last month’s 2-3/4 year low of 477 rigs. Over the last two years, the rig count has decreased from a 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
