Crude Oil and Gasoline Prices Surge Amid Economic Optimism
Market Update: February WTI crude oil (CLG25) sees a gain of +0.65 (+0.89%), while February RBOB gasoline (RBG25) rises by +0.0057 (+0.28%).
Crude oil prices have hit a new 2-1/2 month high today, boosted by a weaker dollar and signs of a robust U.S. economy. The rise follows an unexpected increase in the ISM manufacturing index for December, which rose 0.9 to reach 49.3. This surge in financial markets further supports confidence in energy demand.
Recent U.S. economic data showed better-than-anticipated outcomes, reinforcing crude prices. Specifically, the December ISM manufacturing index not only exceeded expectations but also indicates a continuous recovery in the manufacturing sector.
Strong demand for jet fuel further supports crude prices. According to the EIA, U.S. jet fuel demand climbed 1.9% year-over-year in October, reaching 1.73 million barrels per day (bpd), marking the highest monthly demand in seven years.
On the geopolitical front, the prospect of new sanctions targeting Iranian and Russian crude oil exports looms over the market, which may tighten global oil supplies and drive prices higher. Mike Walz, President-elect Trump’s pick for national security adviser, has committed to reinstating “maximum pressure” on Iran, while the Biden administration is considering more stringent sanctions on Russian export activities.
Further supporting oil prices is a significant drop in the amount of crude oil stored on tankers globally. Vortexa reported a 16% weekly decline in crude oil held on stationary tankers, falling to 60.27 million barrels as of December 27.
OPEC+ recently delayed planned increases in crude production. The coalition pushed back a 180,000 bpd production hike from January to April, opting for a more gradual approach. Additionally, the United Arab Emirates has postponed increasing its production target by 300,000 bpd until April. The OPEC coalition previously agreed to gradually restore 2.2 million bpd until late 2025, but this timeline has now been extended to September 2026. Notably, OPEC’s crude production rose by 120,000 bpd to reach 27.02 million bpd in November.
On the bearish side, China’s weakening crude oil demand may create downward pressure on prices. Bloomberg reports that China’s apparent oil demand decreased by 2.14% year-over-year to 14.013 million bpd in November, and fell by 3.26% for the January-November period compared to the previous year. As the world’s second-largest crude consumer, any decline from China can significantly impact global oil dynamics.
Meanwhile, a decrease in Russian crude oil exports presents another layer of complexity for the market. Data from Bloomberg indicates Russian exports fell by 170,000 bpd to 2.97 million bpd during the week ending December 15.
The EIA’s report disclosed several critical figures for U.S. oil inventories as of December 27: crude oil inventories were 5.3% below the seasonal five-year average, gasoline inventories were 0.4% below the five-year average, and distillate inventories were 5.9% lower than the norm. Additionally, U.S. crude production dipped by 0.1% week-over-week to 13.573 million bpd, which remains just below the record high of 13.631 million bpd set during the week of December 6.
Last week, Baker Hughes noted that the number of active U.S. oil rigs remained stable at 483, slightly above the 2-3/4 year low of 477 recorded last month. Over the past two years, the number of oil rigs has significantly declined from a high of 627 rigs in December 2022.
On the date of publication, Rich Asplund did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. For more information, please view the Barchart Disclosure Policy
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
