Crude Oil Prices Dip as Economic Indicators Weigh on Demand
February WTI crude oil (CLG25) closed at -0.93 (-1.25%) on Wednesday, while February RBOB gasoline (RBG25) ended down -0.0164 (-0.81%).
Crude Prices Retreat from Recent Highs
On Wednesday, crude prices fell back from a three-month high, contributing to moderate losses. The strengthening dollar negatively impacted energy prices. A weekly EIA report added to the downward trend, revealing that crude inventories decreased less than expected last week while gasoline and distillate supplies rose more than anticipated.
Weak Economic Data Points to Lower Demand
Global economic news on Wednesday was generally disappointing, dampening energy demand. In December, the U.S. added +122,000 jobs, falling short of the +140,000 forecast. Additionally, Eurozone economic confidence dropped -1.9 points to a 15-month low of 93.7, below the expected 95.6, and German factory orders fell -5.4% month over month, significantly more than the projected -0.2% decline.
Russian Export Declines Offer Some Support
A decrease in Russian crude oil exports provided some support for prices. Weekly vessel-tracking data from Bloomberg indicated that Russian crude exports declined by -190,000 barrels per day (bpd) to 2.88 million bpd for the week ending January 5.
Potential Tariffs and OPEC+ Moves Impact Prices
The outlook for tariffs being contemplated by President-elect Trump’s aides may mitigate disruptions to global trade, supporting energy demand. Crude prices found additional backing after Saudi Arabia raised its crude prices for Asia by 60 cents per barrel in February, surpassing expectations, indicating tighter supplies in this key market.
The global crude market received further optimistic signals when Vortexa reported a -33% week-over-week drop in crude oil storage on stationary tankers, decreasing to 48.02 million barrels as of January 3.
New Sanctions Could Tighten Supply
The possibility of new sanctions targeting Iranian and Russian crude exports could tighten global supplies, contributing to bullish pressure on prices. Mike Walz, tapped as President-elect Trump’s national security adviser, expressed a commitment to reinstating “maximum pressure” on Iran, while the Biden administration is also considering stricter sanctions on Russian crude oil.
OPEC+ Adjusts Production Plans
Support for crude prices emerged after OPEC+ delayed a planned production increase of +180,000 bpd from January to April, stating it would unwind output cuts more slowly than previously intended. The UAE also postponed a planned increase of 300,000 bpd from January to April. OPEC+ had initially agreed to gradually restore 2.2 million bpd in monthly increments until late 2025, but this timeline has now been extended until September 2026. OPEC’s December crude output fell by -120,000 bpd to 27.05 million bpd.
China’s Demand Weakness Poses Challenges
Crude oil demand in China, the second-largest consumer globally, has shown weakness. Bloomberg data revealed that in November, China’s apparent oil demand dropped -2.14% year-over-year to 14.013 million bpd, and the overall demand from January to November fell -3.26% y/y to 13.996 million bpd.
Latest Weekly EIA Report Is Bearish
The EIA weekly report released on Wednesday presented bearish indicators. Crude oil inventories decreased by -959,000 barrels, which was a smaller reduction than the expected -2.0 million barrels. Gasoline stocks rose by +6.3 million barrels to a ten-month high, outpacing expectations of +500,000 barrels. Distillate supplies increased by +6.1 million barrels to an eleven-month high, also higher than the projected +500,000 barrels. However, there was some positive news as crude supplies at Cushing, a key delivery point for WTI futures, dropped by -2.5 million barrels, reaching a ten-year low.
According to the EIA, U.S. crude oil inventories on January 3 were -5.8% below the five-year seasonal average, while gasoline inventories were -1.4% lower, and distillate stocks stood at -4.8% below the five-year seasonal benchmark. U.S. crude oil production for the week ending January 3 dipped by -0.1% week-over-week to 13.563 million bpd, slightly lower than the record high of 13.631 million bpd recorded during the week of December 6.
US Oil Rigs Experience Continued Decline
Baker Hughes reported last Friday a slight decrease in active U.S. oil rigs. For the week ending January 3, the count fell by -1 to 482 rigs, which is above the 2-3/4 year low of 477 rigs observed on November 29. Over the past two years, the number of U.S. oil rigs 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.
