Oil Prices Experience Mixed Results Amid Middle East Developments
Crude Declines with Hopes for Ceasefire, Gasoline Gains on Supply Concerns
February WTI crude oil (CLG25) closed down -1.32 (-1.67%) on Tuesday, while February RBOB gasoline (RBG25) gained +0.0043 (+0.20%).
On Tuesday, crude and gasoline prices showed a mixed performance. Crude prices fell as expectations for a ceasefire between Hamas and Israel improved, easing some tensions in the Middle East. However, losses in crude were somewhat limited by a weaker dollar.
Gasoline prices saw moderate increases after Colonial Pipeline Co. shut down the largest US fuel pipeline to investigate a potential leak in Georgia, which could affect gasoline supply in the southern US. This pipeline, known as Line 1, carries 1.5 million barrels per day of gasoline from Houston, Texas, to Greensboro, North Carolina.
The decline in crude prices was driven by Qatar’s announcement that a truce deal between Hamas and Israel is closer than ever, which may help reduce tensions in the region and lessen threats to crude supplies.
Despite the recent decline, crude prices retained some support from last Friday’s announcement of new sanctions imposed by the US on Russia’s oil industry, targeting companies like Gazprom Neft and Surgutneftgas. Together, these firms exported approximately 970,000 bpd of Russian crude in the first ten months of 2024, making up about 30% of its tanker flow, according to Bloomberg data. The sanctions also involved insurers and traders linked to hundreds of tanker shipments.
A reduction in Russian crude oil exports has supported prices, as evidenced by weekly vessel-tracking data from Bloomberg showing exports drop by -20,000 bpd to 3.01 million bpd as of January 12.
Similarly, a decrease in crude oil stored worldwide on tankers is a positive indicator for prices. Vortexa reported that on Monday, crude oil held in stationary tankers for at least a week fell by -4.8% week-over-week to 50.59 million barrels for the week ending January 10.
The potential for further sanctions on Iranian and Russian crude may restrict global oil supplies, which could ultimately drive prices higher. Mike Walz, President-elect Trump’s choice for national security adviser, has promised a return to “maximum pressure” on Iran.
Additionally, crude has found support after Saudi Arabia increased its crude prices for Asian customers by 60 cents per barrel for February delivery, which was higher than the anticipated 10 cents. This adjustment suggests Saudi Arabia anticipates tighter supplies in this key export market.
Last month, OPEC+ announced a delay in a planned production increase of +180,000 bpd from January to April. The UAE also decided to postpone a planned increase of 300,000 bpd in crude production targets. OPEC+ had initially planned to restore 2.2 million bpd of output through monthly increases until late 2025, but this has since been shifted back to September 2026. In December, OPEC’s crude production fell by -120,000 bpd to 27.05 million bpd.
However, weaker crude oil demand from China presents a bearish factor for oil prices. According to Chinese customs data, crude imports for 2024 have fallen by -1.9% year-over-year to 553 million metric tons, as China remains the world’s largest crude importer.
Looking ahead, analysts anticipate that Wednesday’s EIA report will show weekly crude inventories down by -850,000 barrels while gasoline supplies are expected to rise by +2.6 million barrels.
The EIA report from last Wednesday indicated that (1) US crude oil inventories as of January 3 were -5.8% below the seasonal five-year average, (2) gasoline inventories were -1.4% below the seasonal average, and (3) distillate inventories were -4.8% below the seasonal average. US crude oil production decreased by -0.1% week-over-week to 13.563 million bpd, slightly lower than the record high of 13.631 million bpd set during the week of December 6.
Baker Hughes reported a reduction in active US oil rigs, which fell by -2 to 480 rigs for the week ending January 10. This number remains modestly above the 477 rigs recorded on November 29, which was a nearly three-year low. Over the past two years, the number of US oil rigs has decreased from a high of 627 rigs 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 are for informational purposes only. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
