Oil Prices Dip Amid Weak Economic Data and OPEC+ Changes
January WTI crude oil (CLF25) closed lower on Monday, down -0.58 (-0.81%), while January RBOB gasoline (RBF25) fell -0.0261 (-1.30%).
Global Weakness Impacts Prices
On Monday, crude oil and gasoline prices settled moderately lower, influenced by disappointing economic reports from China. The latest data revealed continued declines in China’s new home prices and weaker-than-expected retail sales figures. These factors raised concerns about energy demand, putting downward pressure on crude prices.
Specifically, China’s November new home prices fell -0.2% month-over-month, marking the eighteenth consecutive month of declines. Retail sales increased by only +3.0% year-on-year, falling short of the anticipated +5.0% year-on-year increase.
Manufacturing Data Adds to Concerns
Weak manufacturing activity in both the U.S. and Eurozone also contributed negatively to fuel demand. The December U.S. S&P manufacturing PMI dropped -1.4 points to 48.3, underperforming against expectations of 49.5, while the Eurozone’s PMI remained unchanged at 45.2, slightly below the expected 45.3.
China’s Decline Affects Global Demand
China’s declining oil demand remains a bearish influence on prices. Bloomberg reported that apparent oil demand in November fell -2.14% year-on-year to 14.013 million barrels per day (bpd), while the year-to-date average from January to November dropped by -3.26% year-on-year to 13.996 million bpd, confirming China’s position as the world’s second-largest crude oil consumer.
Potential Sanctions Could Shift Market Dynamics
The possibility of new sanctions on Iranian and Russian crude exports has sparked discussions about limited global supply, which could potentially push prices higher. Mike Walz, President-elect Trump’s national security adviser nominee, pledged to reinstate a “maximum pressure” campaign against Iran. Meanwhile, the Biden administration is weighing more severe sanctions on Russian crude oil.
Storage Levels Suggest Increased Demand
Positive indicators for oil prices include a drop in global crude stored on tankers. Vortexa reported a -9.9% week-on-week decline in stationary crude stored on tankers, down to 65.28 million barrels as of December 13.
OPEC+ Adjustments Offer Support
This month, OPEC+ announced a delay to its planned crude production increase of +180,000 bpd from January to April and decided to unwind output cuts more slowly than anticipated. The UAE is also postponing its targeted 300,000 bpd increase from January to April. Previously, OPEC+ intended to restore 2.2 million bpd of output through monthly increments from January to late 2025, pushing that timeline back to September 2026. As a result, OPEC’s November crude production increased by +120,000 bpd to 27.02 million bpd.
Geopolitical Tensions Keep Prices Steady
Escalating tensions from the Ukraine-Russian conflict have provided additional support for crude prices. Recently, Russia conducted a missile strike in Dnipro, prompting concerns over retaliation from Ukraine using Western-supplied weaponry. Additionally, President Putin has indicated a willingness to target “decision-making centers” in Kyiv with ballistic missiles, further heightening geopolitical risk.
Russian Output Impacts Market Sentiment
Counter to these bullish signals, an increase in Russian crude oil exports places downward pressure on prices. Bloomberg’s vessel-tracking data indicated a rise of +570,000 bpd in Russian exports, reaching 3.36 million bpd for the week ending December 1.
U.S. Inventory Reports and Rig Counts
According to last Wednesday’s EIA report, U.S. crude oil inventories fell -6.2% below the seasonal five-year average as of December 6. Gasoline inventories were down -3.6%, while distillate inventories dipped -4.5% compared to their seasonal averages. U.S. crude oil production reached a record 13.631 million bpd for the week ending December 6, marking a +0.9% increase week-over-week.
Baker Hughes reported that the number of active U.S. oil rigs remained steady at 482 for the week ending December 13, slightly above the 477 rig low noted last month. Over the past two years, the number of active rigs has decreased from a 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.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
