Crude Oil Prices Soar to New Heights Amid Supply Concerns
WTI Crude Hits Five-Month High as Gasoline Follows Suit on Pipeline Shutdown
February WTI crude oil (CLG25) is up +1.97 (+2.54%), while February RBOB gasoline (RBG25) rises +0.0605 (+2.87%).
Crude and gasoline prices are on the rise today, marking a five-month high for crude oil and a 3-1/4 month high for gasoline. The weaker dollar has provided a positive environment for energy prices, contributing to these gains. Crude oil prices continued to clime after the EIA reported a significant decline in crude inventories, which dropped to a 2-3/4 year low.
Gasoline prices received additional support after Colonial Pipeline Co. announced the continued closure of its largest U.S. fuel pipeline through at least Friday to investigate a potential leak in Georgia. The shutdown could impact gasoline supplies in the southern and eastern United States. Colonial Pipeline’s Line 1 transports 1.5 million barrels per day (bpd) of gasoline between Houston, Texas, and Greensboro, North Carolina.
Additionally, a rise in the crude crack spread suggests strong demand for refining. Today, the crack spread increased to a 1-1/2 month high, which often encourages refiners to increase crude purchases to produce more gasoline and distillates.
Crude oil prices have also received support from new U.S. sanctions on Russia’s oil industry imposed last Friday. These measures aim to limit global oil supplies by targeting significant exporters, Gazprom Neft and Surgutneftgas, which accounted for about 30% of Russia’s crude tanker flow, exporting approximately 970,000 bpd during the first ten months of 2024, according to Bloomberg. Sanctions have also affected insurers and traders associated with various tanker cargoes.
In light of these developments, a decrease in Russian crude oil exports is impacting pricing positively. Bloomberg’s weekly vessel-tracking data reported a reduction of -20,000 bpd in Russian crude exports, settling at 3.01 million bpd for the week ending January 12.
A recent drop in crude oil stored on tankers around the world also supports higher prices. Vortexa revealed that crude oil accumulated on stationary tankers fell by -4.8% week-over-week to 50.59 million barrels as of January 10.
Looking ahead, potential new sanctions on Iranian and Russian crude exports could further constrain global supplies, positively affecting prices. Mike Walz, President-elect Trump’s national security adviser choice, has pledged to reinstate “maximum pressure” on Iran, signaling stricter measures could be on the horizon.
Support for crude prices is evident as Saudi Arabia raised prices for Asian customers by 60 cents per barrel for February deliveries, exceeding the expected 10-cent increase. This move indicates Saudi Arabia’s anticipation of tighter supplies in its main export market.
However, a recent easing of tensions in the Middle East could negatively impact crude oil prices. Qatar announced that a truce deal between Hamas and Israel is closer than ever, which may alleviate conflict-related risks to crude supply disruptions.
Last month, OPEC+ supported crude prices by delaying a planned production hike of +180,000 bpd from January until April, while also proceeding with output cuts at a slower rate than previously indicated. Furthermore, the United Arab Emirates announced a postponement of a planned increase of 300,000 bpd in crude production from January to April. The group had intended to restore 2.2 million bpd of output in monthly increments until the end of 2025; however, this timeline has now shifted to September 2026. OPEC reported a decline in December crude production, down -120,000 bpd to 27.05 million bpd.
On the bearish side, China’s crude oil demand has softened. Data from Chinese customs indicated a -1.9% year-over-year decrease in crude imports for 2024, totaling 553 million metric tons, reflecting the country’s status as the world’s largest crude importer.
Today’s weekly EIA report provides a mixed outlook for crude and its products. While EIA crude inventories dropped -1.96 million barrels, reaching a 2-3/4 year low—surpassing estimates of -850,000 barrels—the gasoline supplies increased by +5.85 million barrels to a 10-1/2 month high, exceeding expectations of +2.6 million barrels. Likewise, EIA distillate stockpiles saw a rise of +3.08 million barrels to an 11-1/2 month high, also surpassing forecasts of +1.34 million barrels.
The January 10 EIA report revealed that (1) U.S. crude oil inventories were -6.3% below the seasonal 5-year average, (2) gasoline inventories stood -0.9% under the seasonal average, and (3) distillate inventories were -4.2% less than the 5-year average. Additionally, U.S. crude oil production declined by -0.6% week-over-week to 13.481 million bpd, just shy of the record high of 13.631 million bpd recorded during the week of December 6.
Baker Hughes reported that the number of active U.S. oil rigs fell by -2 to 480 rigs in the week ending January 10, slightly above the 2-3/4 year low of 477 rigs noted on November 29. This marks a significant decline from the 4-1/2 year high of 627 rigs achieved 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.
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