Crude Prices Hit 2-Week Low Amid Mixed Market Signals
Market Overview: Crude and Gasoline Prices Diverge
Nov WTI crude oil (CLX24) closed down -0.19 (-0.27%) on Wednesday, while Nov RBOB gasoline (RBX24) rose by +0.26 (+0.13%).
On Wednesday, crude oil and gasoline prices showed contrasting trends. The price of crude fell to a new 2-week low, largely influenced by a rise in the dollar index (DXY00) to a 2-1/4 month high, putting downward pressure on energy prices. Additionally, a report indicating that Israel may refrain from targeting Iranian oil infrastructure in its response to Iran’s missile attack on October 1 has eased some concerns about crude supply from the Middle East.
Geopolitical Factors Weigh on Crude Prices
Recent developments have put crude prices under strain. The Washington Post reported on Tuesday that Israeli Prime Minister Netanyahu told the Biden administration he prefers military strikes over targeting oil or nuclear facilities in Iran in retaliation for the missile attack on Israel. This decision affects market sentiment.
Moreover, an increase in global floating crude oil supplies is making the market more bearish. Vortexa reported that the volume of crude oil sitting on tankers for more than a week surged by +24% weekly to 58.58 million barrels as of October 11.
Libya has also ramped up its crude output following the resolution of a political standoff, further adding to supply concerns. Libya’s National Oil Corporation announced on Sunday that production reached 1.3 million barrels per day (bpd), the highest level in two months.
Support Factors Amid Rising Supply
Despite the prevailing pressures, crude prices have some support as geopolitical tensions remain. The potential for Israel’s retaliation against Iran could escalate hostilities in the region. According to JPMorgan Chase, low global oil inventories may sustain a geopolitical premium in crude prices until the Israel-Iran conflict is resolved.
On September 5, OPEC+ decided to pause its planned increase in crude production of 180,000 bpd for October and November, citing weak crude prices and fragile global energy demand. However, the Financial Times reported on September 26 that Saudi Arabia may drop its unofficial price target of $100 per barrel to regain market share, with plans to return to its original production levels starting December 1. OPEC’s crude production fell by -480,000 bpd in September, reaching an 8-month low of 26.51 million bpd.
Russian Export Declines and US Inventory Expectations
In addition, falling Russian crude exports support higher prices. Bloomberg’s weekly tracking data revealed that Russia’s crude exports decreased by -60,000 bpd to 3.31 million bpd in the week ending October 13. Russia’s Energy Ministry also reported last week that the country’s September crude production was 8.97 million bpd, slightly below its agreed output target with OPEC+.
Looking ahead, analysts expect Thursday’s weekly EIA crude inventories to show an increase of +1.5 million barrels, while gasoline supplies are projected to drop by -2.0 million barrels.
The latest EIA report, released last Wednesday, indicated that US crude oil inventories as of October 4 were -4.0% lower than the seasonal 5-year average, with gasoline inventories down -3.7% and distillate inventories -9.0% below that average. US crude oil production rose by +0.8% week on week to 13.4 million bpd, matching the record high from mid-August.
Baker Hughes reported last Friday that the number of active US oil rigs increased by +2 to 481 rigs, just above a 2-1/2 year low of 477 rigs from July 19. Over the past year, the count has significantly declined from a 4-year high of 627 rigs recorded in December 2022.
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On the date of publication,
Rich Asplund
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