Crude Oil and Gas Prices Decline Amid Weak Economic Data
Crude Oil Prices Decline Due to Economic Weakness and Strong Dollar
April WTI crude oil (CLJ25) is down -1.50 (-2.07%), while April RBOB gasoline (RBJ25) has decreased -0.0362 (-1.56%). Today’s stronger U.S. dollar is putting pressure on energy prices. Additionally, recent economic reports from the U.S. have been disappointing, casting doubt on energy demand. The ongoing thaw in relations between the U.S. and Russia, along with potential peace talks concerning the Russia-Ukraine war, could result in a decrease in sanctions on Russia and a full resumption of their oil exports.
Mixed Economic Reports Contribute to Price Impact
This week’s economic news has mostly come in below expectations, negatively impacting crude oil prices. The University of Michigan’s consumer sentiment index for February was revised downwards by -3.1 points, reaching a 15-month low of 64.7, against an expectation of no change at 67.8. Similarly, the S&P Global services PMI unexpectedly dropped -3.2 to 49.7, marking the steepest contraction pace in two years, while existing home sales in January fell -4.9% month-over-month to 4.08 million, worse than the anticipated decline of -2.6% to 4.13 million. However, the February S&P Global manufacturing PMI did rise +0.4 to an 8-month high of 51.6, slightly exceeding estimates of 51.4.
Crude Price Support from Geopolitical Developments
Market conditions have been buoyed by recent geopolitical developments. A drone attack on a Russian pumping station has the potential to lower Kazakhstan’s crude oil exports by 30%. Furthermore, reports from Bloomberg indicate that OPEC+ may delay the upcoming monthly supply increases, initially scheduled to begin in April. Despite earlier gains, crude prices fell on Thursday due to a mixed weekly EIA inventory report.
U.S. Sanctions on Iranian Oil Exports Tighten Support
Addititonally, crude oil prices find support from expectations of tighter U.S. sanctions on Iranian oil exports. Following a statement from U.S. Treasury Secretary Bessent last week indicating a goal to cut Iranian oil exports by over 90%, more sanctions were introduced earlier this month against an international network aiding the shipment of Iranian oil to China.
EU Moves Against Russian Oil Exports
Crude oil experienced a uptick when it was reported that EU countries may initiate seizures of Russia’s illegal oil-exporting tankers based on international law related to environmental and piracy concerns. Meanwhile, new U.S. sanctions imposed on January 10 targeted key players within Russia’s oil industry, including Gazprom Neft and Surgutneftgas, collectively responsible for approximately 970,000 bpd in crude exports in the first ten months of 2024.
Weak Demand from China and Rising Crude Storage Weigh on Prices
Oil demand in China, the world’s largest crude importer, has weakened, with crude imports declining -1.9% year-over-year to 553 MMT in 2024—a significant bearish indicator for prices. Furthermore, a weekly increase in crude oil held on stationary tankers contributes negatively to the pricing landscape. Vortexa reported a +1.4% weekly rise to 73.77 million bbl for crude stored on tankers as of February 14.
OPEC+ Maintaining Production Strategy
During its monthly meeting earlier this month, OPEC+ decided to maintain its oil production plans for the first quarter, poised to gradually increase crude output beginning in April. The group has delayed a planned production hike of +180,000 bpd from January to April and is unwinding its earlier output cuts at a slower than expected pace. Originally, OPEC+ aimed to restore 2.2 million bpd in installments from January until late 2025, with the completion date for these increases now pushed back to September 2026.
Recent Inventory and Production Updates
The recent EIA report on February 14 revealed that U.S. crude oil inventories are currently -3.6% below the seasonal 5-year average, while gasoline inventories are -0.8% lower than average. Distillate inventories stand -11.9% below past averages. U.S. crude oil production remained steady at 13.497 million bpd, just shy of the record high of 13.631 million bpd set in early December.
U.S. Oil Rig Count Sees Modest Increase
Baker Hughes reported last Friday that the number of active U.S. oil rigs rose by +1 to a total of 481 rigs for the week ending February 14. This figure remains above the three-year low of 472 rigs recorded on January 24, although the count has significantly dropped from the 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 are provided solely for informational purposes. For more information, please refer to the Barchart Disclosure Policy here.
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