Crude Oil Prices Edge Up Amid Chinese Rate Cuts and Geopolitical Tensions
Nov WTI crude oil (CLX24) rose by +0.88 (+1.27%), while Nov RBOB gasoline (RBX24) increased by +0.10 (+0.05%) today.
Moderate gains in crude and gasoline prices are noted today. Chinese banks slashed interest rates, aiming to stimulate economic growth, which is expected to benefit crude prices. At the same time, tensions in the Middle East are also exerting upward pressure on these prices. However, a stronger U.S. dollar is somewhat restraining energy price increases.
In a surprising move, Chinese banks reduced their benchmark lending rates by more than anticipated, cutting by -25 basis points. The one-year loan prime rate (LPR) changed from 3.35% to 3.10%, exceeding the expected -20 basis point reduction. Similarly, the five-year LPR was lowered from 3.85% to 3.60%. This may encourage economic activities and increase energy demand in China, the second-largest consumer of crude oil worldwide.
A notable decrease in stored crude oil on tankers strengthens the bullish outlook. Vortexa reported a -5.4% weekly decline, bringing the total to 58.8 million barrels by October 18.
The specter of Israel possibly retaliating against Iran for a missile attack on October 1 adds another layer of support for crude prices. According to JPMorgan Chase, the low levels of global oil inventories increase the likelihood of a sustained geopolitical premium in crude prices until tensions are alleviated.
Nevertheless, weakened crude demand in China poses challenges. Data from Bloomberg indicates that China’s apparent oil demand in September fell by -6.98% year-over-year to 14.176 million barrels per day (bpd), while total demand for the first three quarters of this year is down -3.8% to 13.99 million bpd.
An additional bearish factor for crude prices emerged last Tuesday when reports revealed that Israeli Prime Minister Netanyahu informed the Biden administration that military action could target facilities other than oil or nuclear sites in Iran as punishment for the missile strike.
Meanwhile, Libya’s recent increase in crude output after resolving a political crisis presents another bearish scenario. On October 13, Libya’s National Oil Corporation announced production had risen to 1.3 million bpd, its highest in two months, which bolstered global supplies.
Despite these pressures, crude prices garnered support after OPEC+ decided on September 5 to halt a planned production increase of 180,000 bpd for October and November amid signs of fragile global energy demand. However, the Financial Times reported on September 26 that Saudi Arabia may abandon its unofficial price target of $100 per barrel to regain market share, sticking to its planned output increase on December 1. OPEC’s output fell by -480,000 bpd in September, reaching an eight-month low of 26.51 million bpd.
Furthermore, Russian crude exports are down, providing some support for prices. Weekly tracking data from Bloomberg showed that Russian exports dropped by -60,000 bpd to 3.31 million bpd by October 13. Additionally, Russia’s Energy Ministry reported that September production declined to 8.97 million bpd, just below the agreed target with OPEC+.
The latest EIA report from last Thursday indicated that U.S. crude oil inventories were -4.8% below the seasonal five-year average as of October 11. Gasoline inventories fell by -3.9% below that average, while distillate inventories plunged -9.8%. Notably, U.S. crude oil production rose by +0.7% week-on-week to a record 13.5 million bpd.
Baker Hughes reported last Friday that the number of active U.S. oil rigs increased by +1 to 482, just above a two-and-a-half-year low of 477 rigs hit in mid-July. Over the past year, this figure has decreased from a four-year high of 627 rigs in December 2022.
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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.
