June WTI crude oil (CLM24) on Monday closed down -1.22 (-1.45%), and June RBOB gasoline (RBM24) closed down -1.31 (-0.48%).
Crude and gasoline prices posted moderate losses on Monday. Crude prices Monday were under pressure on an easing of Middle East tensions. The prospects for a cease-fire in the Hamas-Israel war have improved, undercutting the geopolitical risk premium in crude prices. Losses in crude were limited due to a weaker dollar and a rally in stocks, which bolsters optimism in the economic outlook that is supportive of energy demand.
The prospects for a cease-fire in the Hamas-Israel war have improved, easing geopolitical risks and weighing on crude prices. The New York Times reported Monday that Israel reduced the number of hostages that it wants Hamas to free during the first phase of a new truce in Gaza to 33 from 40, according to three Israeli officials. The shift has raised expectations that Hamas and Israel might be edging closer to a cease-fire.
Strength in the crude crack spread is bullish for crude prices. The crack spread on Monday rose to a 1-1/2 week high, encouraging refiners to boost their crude purchases and refine the crude into gasoline and distillates.
A decrease in crude in floating storage is bullish for prices. Monday’s weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -17% w/w to 62.83 million bbl as of April 26.
Reduced crude demand in India, the world’s third-largest crude consumer, is negative for oil prices after India’s March oil demand fell -0.6% y/y to 21.09 MMT.
Crude prices have underlying support from the Israel-Hamas war and concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran. Also, attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.
Crude has support from the recent Ukrainian drone attacks on Russian refineries that damaged several Russian oil processing facilities, limiting Russia’s fuel exporting capacity. Russia’s fuel exports in the week to April 21 fell by -500,000 bpd from the prior week to 3.45 million bpd. JPMorgan Chase said it sees 900,000 bpd of Russian refinery capacity that could be offline “for several weeks if not months” from the attacks, adding $4 a barrel of risk premium to oil prices.
Crude prices have support from April 3 when OPEC+, at its monthly meeting, did not recommend any changes to their existing crude output cuts, which kept about 2 million bpd of production cuts in place until the end of June. However, OPEC crude production in March rose +10,000 bpd to 26.860 million bpd, a bearish factor for oil prices as Iraq and UAE continue to pump above their production quotas.
Last Wednesday’s EIA report showed that (1) US crude oil inventories as of April 19 were -3.4% below the seasonal 5-year average, (2) gasoline inventories were -3.6% below the seasonal 5-year average, and (3) distillate inventories were -6.8% below the 5-year seasonal average. US crude oil production in the week ending April 19 was unchanged w/w at 13.1 million bpd, below the recent record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ended April 26 fell by -5 rigs to 506 rigs, moderately above the 2-year low of 494 rigs posted on November 10. The number of US oil rigs has fallen over the past year from the 4-year high of 627 rigs posted in December 2022.
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