Crude Oil and Gasoline Prices Surge Amid Supply Concerns

Key Updates on Energy Prices and Market Drivers

February WTI crude oil (CLG25) closed up +2.54 (+3.28%) on Wednesday, while February RBOB gasoline (RBG25) increased by +0.0543 (+2.58%).

On Wednesday, both crude and gasoline prices experienced significant gains, reaching a six-month high for crude and a 3-1/4 month high for gasoline. The weaker dollar is contributing positively to energy prices. A notable drop in weekly EIA crude inventories, which fell more than expected to a 2-3/4 year low, further supported crude prices.

Gasoline prices received additional backing as Colonial Pipeline Co. announced it would maintain the closure of the largest US fuel pipeline through at least Friday due to a potential leak investigation in Georgia. This situation threatens to limit gasoline supplies in the southern and eastern US. Colonial Pipeline’s Line 1 typically transports 1.5 million barrels per day (bpd) of gasoline from Houston, Texas, to Greensboro, North Carolina.

The crude crack spread, which rose to a 1-3/4 month high, is also bolstering crude prices. A higher crack spread incentivizes refiners to increase their crude purchases and process it into gasoline and distillates.

Crude prices are further supported by sanctions imposed by the US on Russia’s oil industry, which could restrict global oil supplies. These measures specifically targeted Gazprom Neft and Surgutneftgas, responsible for exporting about 970,000 bpd of Russian crude in the first ten months of 2024—approximately 30% of Russia’s tanker flow, according to Bloomberg data. Additionally, the US has included insurers and traders associated with numerous tanker cargoes in these sanctions.

Recent weekly vessel-tracking data revealed a drop in Russian crude oil exports, decreasing by 20,000 bpd to 3.01 million bpd in the week ending January 12. This decline is likely to support crude oil prices.

Furthermore, a decrease in the amount of crude oil stored worldwide on stationary tankers is viewed as bullish for oil prices. According to Vortexa, the volume of crude oil held on tankers that have been docked for at least seven days fell by 4.8% week-over-week to 50.59 million barrels for the week ending January 10.

Looking ahead, potential new sanctions targeting Iranian and Russian crude exports may further limit global oil supply, positively affecting prices. Mike Walz, President-elect Trump’s choice for national security adviser, has pledged to reinstate a policy of “maximum pressure” on Iran.

Last Monday, Saudi Arabia indicated its outlook for prices by raising crude prices for February delivery to Asia by 60 cents per barrel, which was above the expected 10-cent increase. This move suggests that Saudi Arabia anticipates tighter supplies in this key export market.

However, easing tensions in the Middle East could negatively impact crude prices. Israel and Hamas reached a ceasefire agreement on Wednesday, which may foster temporary stability in the region and diminish the risk of supply disruptions.

Support for crude prices was also established last month, as OPEC+ postponed a planned production increase of 180,000 bpd from January to April and indicated a more gradual phasing out of output cuts. In addition, the United Arab Emirates plans to delay the anticipated 300,000 bpd increase in its crude production target from January to April. The original OPEC+ agreement to restore 2.2 million bpd of output has consequently been pushed back to September 2026, with December production dropping 120,000 bpd to 27.05 million bpd.

In contrast, crude oil demand in China has declined, which has a bearish effect on prices. Data from Chinese customs indicates that China’s crude imports in 2024 are down by 1.9% year-on-year to 553 million metric tons. As the world’s largest crude importer, this drop is significant.

This week’s EIA report presented a mixed picture for crude and its products. On a positive note, EIA crude inventories fell by 1.96 million barrels to a 2-3/4 year low, surpassing the expected drop of 850,000 barrels. Conversely, EIA gasoline supplies rose by 5.85 million barrels to a 10-1/2 month high, outpacing expectations of a 2.6 million barrel increase. EIA distillate stockpiles also grew by 3.08 million barrels to an 11-1/2 month high, exceeding the expected build of 1.34 million barrels.

As of January 10, the EIA report revealed that (1) US crude oil inventories were 6.3% below the seasonal 5-year average, (2) gasoline inventories were 0.9% below the seasonal average, and (3) distillate inventories stood at 4.2% below the 5-year seasonal average. US crude oil production for the week ending January 10 decreased by 0.6% to 13.481 million bpd, slightly below the record high of 13.631 million bpd recorded on December 6.

Baker Hughes reported that the number of active US oil rigs fell by 2 to 480 rigs for the week ending January 10. This number remains above the 2-3/4 year low of 477 rigs reached on November 29. The count has reduced over the past two years from a high of 627 rigs posted 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.