Oil Prices Decline Amid Mixed Inventory Reports and Geopolitical Developments

Market Overview

January WTI crude oil (CLF25) closed Wednesday down -0.05 (-0.07%), while January RBOB gasoline (RBF25) fell -0.0201 (-1.03%). Gasoline prices hit a one-week low as crude oil faced downward pressure due to a decrease in geopolitical tensions in the Middle East, where Israel and Hezbollah agreed to a cease-fire. The decline in crude oil prices was tempered by a significant drop in the dollar index (DXY00) to a two-week low. Additionally, market expectations of OPEC+ delaying planned oil production increases provided some support for crude prices. Wednesday’s weekly EIA inventory report presented a mixed picture, showing a greater-than-expected decline in crude inventories but an unexpected increase in gasoline supplies.

OPEC+ and Production Expectations

Crude oil prices are supported by growing expectations that OPEC+ will postpone a planned increase of +180,000 barrels per day (bpd) from January to the second quarter of 2025. The group is set to meet online on December 1. Previously, OPEC+ had agreed to restore 2.2 million bpd of output gradually from January through late 2025. Simultaneously, the UAE will be allowed to gradually increase its production capacity by an additional 300,000 bpd.

Tankers and International Supply

Bearish sentiment is evident due to a rise in crude oil held on tankers. Vortexa reported a 34% weekly increase to 74.83 million barrels for crude stored on tankers that have not moved in over seven days, as of November 22.

Geopolitical Influences

The ongoing Ukraine-Russian conflict remains a supportive factor for crude prices. Russia’s recent launch of a hypersonic missile into Dnipro underscores rising tensions. Ukraine’s missile strikes inside Russia, utilizing British and American missiles, have provoked a more aggressive military stance from Russia, including updated nuclear threat policies.

China’s Demand Shifts

Negative trends in crude demand from China also weigh on prices. Data from Bloomberg shows that China’s apparent oil demand fell -5.4% year-over-year in October to 14.07 million bpd. Additionally, demand from January to October decreased -4.03% year-over-year, leaving average consumption at 14.00 million bpd. As the world’s second-largest crude oil consumer, fluctuations in China’s demand can significantly influence global prices.

Russian Exports and Inventory Reports

Increased Russian crude exports have added downward pressure to prices. Vessel-tracking data from Bloomberg indicated that exports rose by +100,000 bpd to 2.93 million bpd for the week ending November 24. The Russian Energy Ministry reported that crude production in September was 8.97 million bpd, slightly below the agreed OPEC+ target of 8.98 million bpd.

EIA Inventory Insights

The EIA report indicated a mixed outlook for crude and its products. On a positive note, crude inventories fell by -1.84 million barrels, surpassing the forecast drop of -1 million barrels. Additionally, supplies at Cushing, the delivery point for WTI futures, decreased by -909,000 barrels. However, gasoline stockpiles unexpectedly increased by +3.3 million barrels, contrary to expectations of a -100,000 barrel draw, and distillate inventories rose by +416,000 barrels, exceeding the anticipated build.

Production Metrics

The EIA report highlighted that as of November 22, US crude oil inventories were -4.5% below the five-year seasonal average, and gasoline inventories remained -3.5% lower. Distillate inventories were also -5.1% below the five-year average. For the week ending in November, US crude production increased by +2.2% to 13.49 million bpd, just shy of this month’s record high of 13.50 million bpd.

Falling Rig Count

Baker Hughes reported a decrease in active US oil rigs as of November 29, with the count falling by two to match the 2.75-year low of 477 rigs initially seen in July. The number of US oil rigs has declined from a four-and-a-half-year high of 627 rigs in December 2022.

On the date of publication, Rich Asplund did not hold any direct or indirect positions in the 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.