Oil Prices Decline Amid Eased Middle Eastern Tensions and Weak Demand
January WTI crude oil (CLF25) closed down -2.30 (-3.23%) on Monday, while January RBOB gasoline (RBF25) fell -0.0637 (-3.16%).
Middle Eastern Cease-Fire Talks Spark Price Drop
Crude oil and gasoline prices faced a sharp drop on Monday as reports indicated that Israel and Hezbollah may soon reach a cease-fire agreement. This decrease occurred alongside a weaker dollar and a surge in the S&P 500, which typically represents growing confidence in the economy and energy demand.
Crude Prices React to Geopolitical Developments
The decline in crude oil prices gained momentum after the Israeli ambassador to the US mentioned the possibility of a cease-fire between Israel and Hezbollah happening “within days.” Such developments typically lessen the risk of supply disruptions in the Middle East, which is taken as bearish news for crude prices.
Crack Spread Weakness Signals Caution
The crude crack spread also weakened, falling to a 3-1/2 week low. This trend discourages refiners from buying crude oil for gasoline and distillate production, further impacting oil prices.
Rising Stored Crude Oil Signals Bearish Trend
Additionally, Vortexa reported a significant increase in crude oil stored on tankers, which are stationary for at least seven days. This inventory rose by +34% week-over-week to reach 74.83 million barrels as of November 22, signaling weaker demand.
OPEC+ Production Decisions Loom
The market is anticipating that OPEC+ may postpone a planned increase of +180,000 barrels per day (bpd) from January to the second quarter of 2025. This decision will be discussed during the group’s online meeting on December 1. Previously, OPEC+ had agreed to restore 2.2 million bpd of output gradually through late 2025, with the UAE allowed to add 300,000 bpd due to production capacity increases.
Ukraine-Russian Conflict Provides Mixed Signals
While geopolitical tensions in the Middle East may ease, ongoing conflict between Ukraine and Russia supports crude prices. Russia launched a new hypersonic missile into Dnipro last week, countered by Ukraine’s use of Western long-range missiles, including British cruise missiles targeting military sites in Russia. This escalation has prompted responses from Russian leadership, including updates to nuclear policy.
China’s Weakening Demand Pressures Prices
Adding to the bearish factors is the decline in crude demand in China, the world’s second-largest crude consumer. Data from Bloomberg indicates that China’s apparent oil demand fell -5.4% year-over-year in October to 14.07 million bpd. For the first ten months of the year, demand decreased by -4.03% year-over-year, totaling 14.00 million bpd.
Drop in Russian Exports Counteracts Supply Concerns
In contrast, a recent dip in Russian crude exports has provided some support for oil prices. Data shows Russian crude exports fell by -740,000 bpd to a four-month low of 2.83 million bpd in the week ending November 17. Russia’s Energy Ministry also reported that September crude production was 8.97 million bpd, slightly below its OPEC+ target.
US Inventory and Rig Counts Point to Caution
Last Wednesday’s EIA report highlighted that US crude oil inventories as of November 15 were -4.5% lower than the five-year average. Gasoline and distillate inventories were similarly down by -4.0% and -4.5%, respectively. Production for the week ending November 8 also declined by -0.7% to 13.4 million bpd, retreating from a record high of 13.5 million bpd.
Baker Hughes noted that the number of active US oil rigs increased by one to 479 as of the week ending November 22, slightly above the recent low of 477 rigs. Over the past two years, the number of US 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 securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
