Crude Oil and Gas Prices Climb on US Economic Strength and Supply Concerns
March WTI crude oil (CLH25) is up +0.23 (+0.33%), while March RBOB gasoline (RBH25) has increased by +0.0237 (+1.14%).
A US Economic Boost Amid Supply Tightening Fears
Today’s rise in crude oil and gasoline prices reflects optimism about the US economy, particularly after January’s unemployment rate dropped unexpectedly to a low of 4.0%. Additionally, the US has intensified sanctions on Iranian crude exports, raising concerns of tighter global supplies. However, a stronger dollar is limiting further gains in crude oil prices. Compounding this trend, the University of Michigan’s February consumer sentiment index fell to a seven-month low, indicating potential declines in energy demand.
Refinery Activity and Support from Crack Spread Strength
The increase in the crude crack spread, which rose to a five-and-a-half-month high, points to a favorable environment for crude prices. This higher spread encourages refiners to purchase more crude oil for conversion into gasoline and distillates.
Impact of Sanctions on Iranian Exports
On Thursday, crude prices found additional support when the US sanctioned an international network associated with the transport of Iranian crude oil to China. Moreover, a recent report from Vortexa indicated a week-over-week decline of 6.9% in the volume of crude stored on stationary tankers, which totaled 67.30 million barrels as of January 31.
OPEC+ Production Decisions Steer Market Trends
At its monthly meeting, OPEC+ stated it will not alter its oil production plans for the first quarter but will gradually restore output beginning in April. Earlier this month, new US sanctions targeting Russian oil production raised concerns that global supplies could be further restricted. Historical data shows that these sanctions had significant implications, impacting around 30% of Russia’s tanker flow from major exporters Gazprom Neft and Surgutneftgas.
Decreased Russian Exports and Future Sanctions
A drop in Russian crude oil exports further supports crude prices, with Bloomberg reporting a decline of 130,000 barrels per day to 3.09 million barrels per day by February 2. The potential for further sanctions on Iranian and Russian crude exports continues to tighten global supply, with US officials expressing a commitment to reinstating strict measures against both countries.
OPEC+ Production Adjustments and Delays
Last month, OPEC+ acknowledged a slowdown in its output increases, pushing back a planned rise of 180,000 barrels per day from January until April. The group’s earlier agreement to restore 2.2 million barrels per day of output in monthly increments is now extended until September 2026. In January, OPEC’s crude production saw a drop of 700,000 barrels per day, falling to 27.03 million barrels per day.
China’s Import Trends and US Inventory Reports
China’s crude oil demand has weakened, posing a bearish factor for global oil prices. Recent customs data indicated a 1.9% year-over-year decline in crude imports to 553 MMT. Additionally, the latest EIA report revealed that US crude oil inventories as of January 31 were 3.8% below the seasonal five-year average, while gasoline inventories were 0.3% above and distillate inventories were down 12.4% from this average. Notably, US crude oil production rose by 1.8% week-over-week to 13.478 million barrels per day, though it remains slightly below December’s record high.
US Active Oil Rigs on the Rise
Baker Hughes reported last Friday that the number of active US oil rigs increased by 7 to reach 479, rebounding from a three-year low of 472. Over the past two years, this number has decreased significantly from the 4.5-year high of 627 rigs recorded 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.
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