Crude Oil Prices Decline Amid Sanction Speculation
February WTI crude oil (CLG25) today is down -1.76 (-2.20%), and February RBOB gasoline (RBG25) is down -0.0582 (-2.70%).
Impact of Political Developments
Crude and gasoline prices are lower today due to expectations that President-elect Trump may reduce sanctions on Russian energy exports. This move is believed to be aimed at facilitating a diplomatic agreement between Russia and Ukraine. Additionally, the ongoing ceasefire between Israel and Hamas could allow ships to resume operations in the Red Sea, further pressuring crude prices.
Market Reactions to Sanction Strategies
According to a Bloomberg report, President-elect Trump’s advisers are devising a strategy to ease sanctions on Russian energy. This may benefit Russian oil producers and aid in achieving a peace deal. Meanwhile, gasoline prices received some support earlier in the week when Colonial Pipeline Co. announced the continued shutdown of its largest fuel pipeline to investigate a potential leak in Georgia. This pipeline, known as Line 1, transports 1.5 million barrels per day (bpd) of gasoline from Houston, Texas, to Greensboro, North Carolina.
Recent Sanctions and Their Effects
Crude oil prices received backing last week after the U.S. imposed new sanctions on Russia’s oil industry. These new measures specifically targeted Gazprom Neft and Surgutneftgas, which together exported about 970,000 bpd of crude in the first 10 months of 2024, making up roughly 30% of Russia’s tanker flow, as reported by Bloomberg. Sanctions also affected insurers and traders linked to numerous tanker shipments.
Tracking Russian Oil Exports
A reduction in Russian crude oil exports could bolster crude oil prices. Bloomberg’s weekly data indicated that Russian crude exports decreased by -20,000 bpd to 3.01 million bpd in the week ending January 12. Additionally, Vortexa reported a -4.8% week-over-week decline in crude oil stored on tankers that were stationary for over seven days, down to 50.59 million barrels as of January 10. This decrease is generally positive for oil prices.
Outlook for Global Oil Supplies
Potential new sanctions on Iranian and Russian crude exports could further restrict global oil supplies, which may drive prices up. Mike Walz, President-elect Trump’s choice for national security adviser, has promised a return to “maximum pressure” tactics concerning Iran.
Saudi Arabia’s Price Increase Signals Tight Supplies
Support for crude prices also came from Saudi Arabia’s recent decision to raise its crude prices for Asian customers for February delivery by 60 cents per barrel, exceeding expectations of a 10-cent increase. This move indicates that Saudi Arabia anticipates tighter supplies in its largest crude export market.
OPEC+ Production Decisions
Last month, OPEC+ delayed a planned production increase of +180,000 bpd from January to April and opted to unwind output cuts more slowly. The United Arab Emirates will also postpone a planned increase of 300,000 bpd from January to April. Originally, OPEC+ agreed to restore a total of 2.2 million bpd gradually from January until late 2025, but this timeline has now been extended to September 2026. OPEC’s crude production in December fell by -120,000 bpd to 27.05 million bpd.
Challenging Conditions for Demand in China
Demand for crude oil in China, the world’s largest crude importer, has diminished, which negatively impacts oil prices. According to customs data, China’s crude imports for 2024 dropped -1.9% year-on-year to 553 million metric tons.
Current U.S. Inventory Reports
The latest EIA report revealed key metrics as of January 10: (1) US crude oil inventories are -6.3% below the seasonal 5-year average, (2) gasoline inventories are -0.9% below the seasonal 5-year average, and (3) distillate inventories decreased by -4.2% relative to the 5-year average. Additionally, US crude oil production for the week ending January 10 fell by -0.6% to 13.481 million bpd, slightly below the record high of 13.631 million bpd recorded the week of December 6.
Shifts in U.S. Rig Count
Baker Hughes reported last Friday that the number of active U.S. oil rigs fell by -2 to 480 in the week ending January 10. This count is modestly above the 477 rigs that represent a 2-3/4 year low, recorded on November 29. Over the past two years, the number of active oil rigs has declined from a 4-1/2 year high of 627 rigs posted 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
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
