Oil Prices Climb Amid Supply Concerns and Global Tensions
January WTI crude oil (CLF25) is currently up +0.80 (+1.14%), while January RBOB gasoline (RBF25) has risen +0.0112 (+0.56%).
Today, crude oil and gasoline prices are trending higher, reaching their highest points in two and a half weeks. The potential for new sanctions against Russian and Iranian crude supplies is contributing to this upward movement. Additionally, increased airstrikes by Russia on Ukraine’s power facilities are heightening tensions in the region. However, a rise in the dollar index (DXY00) to a two-and-a-half-week high has limited further gains in crude prices.
Political Factors Strain Oil Supply Outlook
The prospect of new sanctions on Iranian and Russian crude exports is raising concerns about global oil supplies, which could push prices higher. Mike Walz, President-elect Trump’s nominee for national security adviser, has pledged to reinstate “maximum pressure” on Iran. Meanwhile, the Biden administration is weighing more stringent sanctions on Russian crude oil.
Support for crude prices came from a report by the Times of Israel, indicating that Israel’s military views the decline of Syria’s regime as a chance to strike at Iran. This could potentially escalate conflict and disrupt crude supplies from the area.
Economic Indicators May Impact Energy Demand
The Bundesbank’s decision to lower its German 2024 GDP estimate from +0.3% to -0.2% indicates a potential decrease in energy demand, a bearish signal for crude prices.
Furthermore, a recent monthly report from the International Energy Agency (IEA) forecasts an oversupply in global oil markets, predicting a surplus of 1.4 million barrels per day (bpd) if OPEC+ follows through with plans to boost crude output by April. Even in the absence of production increases, a supply glut of 950,000 bpd is expected.
Chinese Stimulus Efforts Provide Some Support
Oil prices are being bolstered by the promise of further stimulus measures in China. Recently, the Chinese Politburo announced plans for a “moderately loose” monetary policy for the coming year, signaling a proactive fiscal approach that may further ease economic pressures.
Crude Storage Trends Indicate Supply Tightening
A report from Vortexa shows a bullish sign for oil prices, noting a 12% week-over-week decline in crude oil stored on tankers that have remained stationary for at least seven days, totaling 62.74 million barrels as of December 6.
Additional support came last Thursday when OPEC+ delayed a planned increase in crude production by 180,000 bpd from January to April. They also announced a slower pace for unwinding output cuts. The UAE has similarly postponed its planned increase of 300,000 bpd until April, as OPEC had previously agreed to restore 2.2 million bpd in monthly installments until late 2025, now pushed to September 2026. In November, OPEC’s crude production rose by 120,000 bpd to 27.02 million bpd.
Geopolitical Tensions Feed Crude Price Stability
Ongoing conflicts in Ukraine support crude prices. Recently, Russia launched a hypersonic missile strike on Dnipro, coinciding with Ukraine’s use of long-range missiles against Russian targets. Russian President Putin has also stated that Russia could target “decision-making centers” in Kyiv with ballistic missiles. Last week, he approved an updated nuclear doctrine allowing for the potential use of nuclear weapons in response to conventional attacks on Russian territory.
China’s Demand Decline Poses Risks to Prices
Conversely, weakening crude demand in China poses a bearish factor for oil prices. Data from Bloomberg indicates that China’s apparent oil demand in October fell by 5.4% year-over-year to 14.07 million bpd, and overall demand from January to October was down 4.03% year-over-year to 14.00 million bpd. China remains the world’s second-largest crude consumer.
Amid these developments, an increase in Russian crude exports is further bearish for oil. Weekly vessel-tracking data from Bloomberg shows that Russian crude exports rose by 570,000 bpd to 3.36 million bpd during the week ending December 1.
US Inventory and Production Trends
According to Wednesday’s EIA report, US crude oil inventories as of December 6 were 6.2% below the seasonal five-year average. Gasoline inventories were down 3.6%, and distillate inventories were 4.5% below that seasonal average. During the week ending December 6, US crude oil production increased by 0.9% to a record 13.631 million bpd.
Furthermore, Baker Hughes reported a rise in the number of active US oil rigs, increasing by five to 482 rigs for the week ending December 6, rebounding from a low of 477 rigs. This number has fallen from a 4.5-year high of 627 rigs reached 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 here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
