Oil Prices Rise Amid Geopolitical Tensions and Market Dynamics
Crude Oil Hits Two-Week High as Global Events Stir Markets
January WTI crude oil (CLF25) closed up +1.14 (+1.63%) on Friday, while January RBOB gasoline (RBF25) also gained, closing up +0.0132 (+0.66%).
On Friday, crude oil and gasoline prices settled moderately higher, with crude reaching a two-week high. The rise is largely attributable to escalating global geopolitical tensions. Recently, Russia launched a hypersonic missile into Dnipro, Ukraine. Meanwhile, Iran announced its intention to increase nuclear fuel production after receiving censure from the International Atomic Energy Agency.
The upward movement in crude prices was buoyed by a rally in the S&P 500, which hit a one-week high, indicating increased confidence in the economic outlook. This is generally positive for energy demand. However, a rise in the dollar index (DXY00) to a two-year high somewhat tempered these gains.
Crude prices are also being supported by the ongoing Ukraine-Russian conflict. Russia’s missile strike follows Ukraine’s use of Western-supplied long-range missiles, marking a significant escalation. Just this week, Ukraine utilized British cruise missiles against Russian military sites, a decision approved by the UK government in response to Russia sending North Korean troops to the front lines. Earlier actions included Ukraine’s missile strikes on a Russian border region using US-supplied missiles. In reaction, President Putin updated Russia’s nuclear doctrine to allow more circumstances for nuclear weapon usage, particularly if the nation is attacked conventionally.
Iran’s announcement to ramp up its nuclear activities has further fueled crude prices. Following new censure from the United Nations atomic watchdog, Iran’s actions may lead the U.S. to impose additional sanctions on Iranian crude, consequently straining global oil supplies.
However, there are bearish factors affecting oil prices as well. The crude crack spread has weakened, dropping to a two-week low. This trend discourages refiners from purchasing crude to convert it into gasoline or distillates.
On a more positive note for oil prices, data from Vortexa indicates a notable decline in global crude oil held on tankers. The amount of crude oil stored on stationary tankers dropped by -14% week-over-week to 50.97 million barrels for the week ending November 15.
Heightened concerns surrounding potential hostilities in the Middle East also support crude prices. Iranian supreme leader Ayatollah Ali Khamenei has threatened a “crushing response” to Israel’s recent air strikes, which could escalate conflicts and disrupt oil supplies in the region.
However, demand for crude in China has weakened. Bloomberg data shows that October’s apparent oil demand in China fell by -5.4% year-over-year to 14.07 million barrels per day (bpd). Additionally, from January to October, demand dropped by -4.03% year-over-year to 14.00 million bpd, highlighting challenges for the world’s second-largest crude consumer.
Declining Russian crude exports present another bullish signal for oil prices. Weekly tracking data from Bloomberg revealed that Russian crude exports fell by -740,000 bpd to a four-month low of 2.83 million bpd during the week ending November 17. Russia’s Energy Ministry also reported that crude production for September was 8.97 million bpd, slightly below its OPEC+ target.
According to the EIA report released Wednesday, as of November 15, U.S. crude oil inventories were -4.5% below the seasonal five-year average. Gasoline inventories also fell -4.0% below the seasonal average, while distillate inventories were -4.5% below. U.S. crude oil production for the week ending November 8 declined -0.7% week-over-week to 13.4 million bpd, slightly down from the record of 13.5 million bpd the previous week.
Baker Hughes reported on Friday that the number of active U.S. oil rigs increased by one to 479. This figure remains just above the 2 3/4-year low of 477 rigs recorded the week ending July 19. Over the past two years, the number of U.S. 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 in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
