Crude Oil Prices Climb to 2-Month High Amid Positive Economic Indicators
February WTI crude oil (CLG25) closed on Friday up +0.83 (+1.13%), while February RBOB gasoline (RBG25) increased by +0.0018 (+0.09%).
Economic Strength Fuels Crude Price Surge
Crude oil and gasoline prices experienced a significant rise on Friday, with crude oil reaching a new 2-1/2 month peak. A weaker dollar contributed to the favorable energy prices, alongside encouraging signals from the U.S. economy. Notably, the December ISM manufacturing index jumped +0.9 to a 9-month high of 49.3, outpacing forecasts that predicted a drop to 48.2. The stock market’s rally on Friday also reflects growing confidence in economic conditions, which bodes well for energy demand and crude prices.
Strong Jet Fuel Demand Offers Additional Support
The demand for jet fuel in the U.S. has shown strength, which underscores support for crude prices. According to the EIA, U.S. jet fuel demand rose +1.9% year-over-year in October to 1.73 million barrels per day (bpd), marking the highest monthly level in seven years.
Political Tensions Could Impact Oil Supply
The potential for new sanctions on Iranian and Russian crude exports adds further bullish sentiment for oil prices. Mike Walz, slated to be President-elect Trump’s national security adviser, has committed to reinstating “maximum pressure” on Iran. Concurrently, the Biden administration is mulling over stricter sanctions on Russian crude oil.
Global Supply Metrics Show Encouraging Trends
A decline in crude oil held on tankers reinforces the positive outlook for oil prices. Vortexa indicated that crude oil stored on stationary tankers fell by -16% week-on-week to 60.27 million barrels for the week ending December 27.
OPEC+ Adjustments and Production Plans Affect Pricing
Last month, crude prices found support as OPEC+ postponed a planned production increase of +180,000 bpd from January to April. The United Arab Emirates (UAE) also announced a delay of its planned 300,000 bpd increase from January to April. Originally, OPEC+ intended to restore 2.2 million bpd in monthly increments from January until late 2025, a timeline that has now pushed back until September 2026. In November, OPEC’s crude production rose by +120,000 bpd to reach 27.02 million bpd.
China’s Demand Declines Impacts Global Market
Despite some positive signals, a decline in China’s crude oil demand presents a bearish factor for prices. Bloomberg data shows that China’s apparent oil demand fell -2.14% year-over-year in November to 14.013 million bpd, with total demand from January to November down -3.26% year-over-year to 13.996 million bpd. As the world’s second-largest crude oil consumer, China’s consumption has a significant impact on global prices.
Russian Export Trends Remain Supportive
On a supportive note, a reduction in Russian crude exports helps strengthen the crude oil market. Vessel-tracking data from Bloomberg indicated that Russian crude exports dropped by -170,000 bpd to 2.97 million bpd in the week ending December 15.
US Inventory Reports Show Tight Market Conditions
Thursday’s EIA report revealed that US crude oil inventories as of December 27 were -5.3% below the seasonal 5-year average. Gasoline inventories were down -0.4%, while distillate stocks were -5.9% below this average. Additionally, US crude oil production fell -0.1% week-on-week to 13.573 million bpd, slightly below the record high of 13.631 million bpd recorded in early December.
Active US Oil Rigs Reach a New Low
According to Baker Hughes, the active U.S. oil rig count decreased by -1 to 482 for the week ending January 3. This number remains just above the 2-3/4 year low of 477 rigs reached on November 29. Over the past two years, the count has significantly dropped from the 4-1/2 year high of 627 rigs seen 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
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
