Crude Oil Prices Increases Amid Mixed Economic Signals
Market Performance: February WTI crude oil (CLG25) saw an increase of +0.39 (+0.55%) on Monday, with February RBOB gasoline (RBG25) rising by +0.0191 (+0.97%).
On Monday, crude oil and gasoline prices gained moderately, reaching a five-week and two-week high, respectively. The recent bump in crude prices follows a significant drop in U.S. crude inventories. A report last Friday from the EIA indicated a decline of -4.24 million barrels, surpassing expectations of a mere -600,000 barrels. Additionally, a surge of +16% in natural gas prices—triggered by forecasts of colder weather—has provided further support for crude prices. However, developments in the dollar and stock markets caused crude prices to retreat from their highest levels.
The U.S. economic news released on Monday presented a mixed picture for crude prices. On a positive note, pending home sales for November increased by +2.2% month-over-month, significantly above the forecast of +0.8%. The December Dallas Fed manufacturing outlook unexpectedly saw a rise of +5.1, reaching a two and three-quarters year high of 3.4, rather than a predicted decline to -3.0. Conversely, the December MNI Chicago PMI unexpectedly dipped -3.3 to a seven-month low of 36.9, contradicting expectations of growth to 43.0.
Another factor boosting crude prices is the strength of the crude crack spread, which reached a two-week high on Monday. This increase encourages refiners to purchase more crude oil and process it into gasoline and other products.
Global political uncertainty continues to affect oil prices. President-Elect Trump recently threatened to take control of the Panama Canal unless transit rates are lowered, furthering his rhetoric on tariffs and sanctions. The potential for new sanctions on Iranian and Russian crude exports could tighten global oil supply, which may positively influence prices. Mike Walz, Trump’s national security adviser, affirmed intentions to restore “maximum pressure” on Iran, while the Biden administration is contemplating stricter sanctions on Russian crude.
A report from Vortexa has indicated that globally stored crude oil on stationary tankers has decreased by -16% week-over-week, now totaling 60.27 million barrels as of December 27. This decline supports bullish market sentiments.
Earlier in December, OPEC+ announced plans to delay a production hike of +180,000 barrels per day. The UAE also stated it would postpone a planned increase of 300,000 barrels per day in production from January to April, pushing back the restoration of 2.2 million barrels per day of output until September 2026. In November, OPEC’s crude production rose by +120,000 barrels per day to 27.02 million barrels per day.
The ongoing escalation of the Ukraine-Russian conflict remains a supportive factor for crude prices. Recent military actions, including Russia’s launch of a hypersonic missile and threats from President Putin regarding missile strikes on Kyiv, raise concerns that could impact oil supply dynamics.
Conversely, China’s declining crude oil demand could weigh on prices. Data indicates that China’s apparent oil demand fell by -2.14% year-over-year in November, alongside a decrease of -3.26% year-to-date.
Additionally, a decline in Russian crude exports is viewed positively for crude. Bloomberg’s weekly vessel-tracking data revealed a drop of -170,000 barrels per day in Russian crude exports, reaching 2.97 million barrels per day for the week ending December 15.
The EIA’s report from last Friday highlighted critical inventory figures: (1) U.S. crude oil inventories were -6.1% below the seasonal five-year average as of December 20, (2) gasoline stocks were -2.8% below the average, and (3) distillate inventories were -8.2% below the five-year average. Furthermore, U.S. crude oil production decreased by -0.1% week-over-week to 13.585 million barrels per day, just shy of the record high of 13.631 million barrels per day observed earlier in December.
Baker Hughes reported that the number of active U.S. oil rigs remained unchanged at 483 as of the week ending December 27, slightly above the two and three-quarters year low of 477 rigs reached last month. Over the past two years, the total number of U.S. oil rigs has dropped from a peak of 627 rigs in December 2022.
On the date of publication,
Rich Asplund
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