Energy Market Update: Crude Oil and Gasoline Prices Decline Amid Strong Economic News
January WTI crude oil (CLF25) today is down -0.50 (-0.71%), while January RBOB gasoline (RBF25) has decreased by -0.0275 (-1.42%).
Market Pressures Amid Strong Dollar and Positive Economic Indicators
Both crude oil and gasoline prices are facing downward pressure today, with gasoline hitting a 1-1/2 week low. The dollar index (DXY00) rallied to a 2-year high, negatively impacting energy prices. However, stronger-than-expected economic data from the U.S. is supporting crude demand. Additionally, positive sentiment stems from Kazakhstan’s commitment to OPEC+ production quotas.
Better-than-Expected Economic Reports Boost Demand Outlook
Today’s U.S. economic announcements exceeded expectations and positively influenced energy demand. The Q3 GDP was revised upward to 3.1% (quarter-over-quarter annualized), surpassing the anticipated 2.8%. Furthermore, weekly initial unemployment claims dropped by 22,000 to 220,000, indicating a stronger labor market than the expected 230,000. Also noteworthy, November’s leading indicators unexpectedly rose by 0.3% month-over-month, marking the largest gain in nearly three years. Lastly, existing home sales in November increased by 4.8% month-over-month, reaching 4.15 million, which is above the anticipated 4.09 million.
Crack Spread Weakness Adds to Downward Pressure on Crude
The decline in the crude crack spread is contributing to lower crude prices. Today, the crack spread fell to a 2-3/4 month low, which may deter refiners from purchasing crude for gasoline and distillate production.
Support for Crude Prices Amid OPEC+ Compliance
Crude prices received support earlier this month when OPEC+ announced a delay in planned production increases. Kazakhstan confirmed its intention to adhere to OPEC+ quotas, opting against a 190,000 bpd production increase for next year.
Potential Sanctions Could Bolster Oil Prices
New sanctions targeting Iranian and Russian crude exports could restrict global oil supplies, leading to higher prices. Mike Walz, President-elect Trump’s choice for national security adviser, promised a return to “maximum pressure” on Iran, while the Biden administration is considering tougher sanctions on Russian crude.
Declining Crude Oil Held on Tankers Offers Support
A reduction in the amount of crude oil stored on stationary tankers is seen as bullish for oil prices. Recent data from Vortexa revealed a weekly decline of 9.9%, bringing the total to 65.28 million bbl as of December 13.
OPEC+ Adjustments Impact Market Dynamics
Earlier support for crude prices arose when OPEC+ postponed a planned increase of 180,000 bpd from January to April. The United Arab Emirates also delayed a planned increase in its production target. The organization has now extended its timeline for output restoration until September 2026.
Geopolitical Tensions Affecting Crude Prices
The ongoing Ukraine-Russian conflict remains a driving force for crude prices. Recent missile strikes and threats by Russian President Putin regarding potential attacks on Kyiv highlight the volatility in the region, which often influences market stability.
China’s Demand Weakens, Pressuring Prices
On the downside, China’s crude demand has weakened significantly. November’s apparent oil demand fell by 2.14% year-over-year, with a similar trend observed for the January-November period. As the second-largest crude consumer globally, this decline could negatively impact oil prices.
Declining Russian Crude Exports Provide Some Relief
Conversely, a decrease in Russian crude exports is offering some support. Weekly data shows a decline of 170,000 bpd, bringing the total down to 2.97 million bpd as of December 15.
U.S. Energy Production Trends and Rig Counts
According to Wednesday’s EIA report, U.S. crude oil inventories as of December 13 were 5.9% below the seasonal 5-year average, while gasoline inventories were 3.3% lower. Distillate inventories also fell significantly. The report indicated a slight decrease in U.S. crude oil production, which fell by 0.2% week-over-week to 13.604 million bpd.
Baker Hughes reported that active U.S. oil rigs remained unchanged at 482 rigs, slightly above a 2-3/4 year low. Rig counts have significantly dropped from a high of 627 rigs in December 2022.
On the date of publication, Rich Asplund did not hold (either directly or indirectly) positions in any securities mentioned in this article. All information and data provided here are for informational purposes only. For more information, please refer to the Barchart Disclosure Policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
