Oil Prices Rise Amid Middle East Tensions and Economic Optimism

December WTI crude oil (CLZ24) closed on Friday with a gain of +1.59 (+2.27%), while December RBOB gasoline (RBZ24) also increased by +0.0447 (+2.25%).

On Friday, both crude and gasoline prices experienced moderate increases, with gasoline reaching a one-week high. Rising tensions in the Middle East have contributed to the uptick in crude prices, alongside stronger-than-anticipated global economic news that positively impacted energy demand.

The potential for disrupted crude supplies from the Middle East is pushing prices higher. The US recently indicated its willingness to assist Saudi Arabia if conflicts escalate in the region. Additionally, the New York Times reported that Iran has placed its armed forces on high alert. The market is closely watching for Israel’s response following the missile attack from Iran on October 1.

Support from positive economic news contributed to the rise in energy demand and crude prices on Friday. New orders for US capital goods, excluding defense and aircraft, increased by +0.5% month-over-month in September, exceeding expectations of +0.1%. Meanwhile, the University of Michigan’s October consumer sentiment index was revised upward to a six-month high of 70.5, surpassing the forecast of 69.0. In Germany, the October IFO business climate indicator rose by +1.1 to 86.5, also above expectations.

Adding to the bullish sentiment, Vortexa reported a decline in crude stored on tankers globally. Crude oil held on stationary tankers for over seven days decreased by -5.4% weekly, totaling 58.8 million barrels as of October 18.

Contrarily, China’s weakening crude demand is a bearish influence on oil prices. According to Bloomberg, China’s total apparent oil demand dropped -6.98% year-over-year in September, amounting to 14.176 million barrels per day. For the year to date (January – September), Chinese oil demand has decreased -3.8% year-on-year to 13.99 million barrels per day.

In Libya, an increase in crude production after resolving a political impasse adds to bearish pressure on prices. Libya’s National Oil Corporation announced on October 13 that the country’s crude production rose to 1.3 million barrels per day, the highest level in two months, thereby increasing global crude supplies.

Crude prices found support after OPEC+ decided on September 5 to pause a scheduled production increase of 180,000 barrels per day for October and November due to signs of weak prices and unstable global energy demand. Notably, the Financial Times reported on September 26 that Saudi Arabia might abandon its unofficial oil price target of $100 per barrel to reclaim market share while committing to its planned crude production levels by December 1. OPEC crude production for September saw a decline of -480,000 barrels per day, hitting an eight-month low of 26.51 million barrels per day.

Russian crude export levels added bearish sentiment, as Bloomberg’s vessel tracking indicated a rise of +150,000 barrels per day to 3.46 million barrels per day in the week ending October 20. Conversely, Russia’s Energy Ministry reported a slight decrease in September’s crude production, totaling 8.97 million barrels per day—just below the 8.98 million target set in cooperation with OPEC+.

A recent EIA report revealed that US crude oil inventories as of October 18 were -3.6% below the five-year seasonal average. Furthermore, gasoline stocks were -2.9% lower, and distillate inventories dropped by -9.0% compared to the five-year average. US crude oil production remained steady in the week ending October 18 at a record 13.5 million barrels per day.

Additionally, Baker Hughes reported a reduction in active US oil rigs, which fell by -2 to 480 rigs in the week ending October 25. This figure remains slightly above the 2.5-year low of 477 rigs recorded on July 19 and marks a significant drop from the four-year high of 627 rigs reached in December 2022.

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On the date of publication, Rich Asplund did not hold 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.