December WTI crude oil (CLZ26) closed down -0.81 (-0.93%) on Tuesday, and December RBOB gasoline (RBZ26) closed down -0.0421 (-1.59%).
Crude oil and gasoline prices added to Monday’s sharp losses on Tuesday, with crude oil falling to a 2.5-month low and gasoline dropping to an 8-month low. Heightened optimism that a resolution to the US-Iran war will lead to a full resumption of energy supplies from the Middle East is weighing on crude prices. Also, Tuesday’s rally in the dollar index ($DXY) to a 1.5-week high was bearish for energy prices.
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Hopes for a breakthrough in negotiations to end the US war in Iran have increased after last week’s Democratic sweep of US midterm elections, adding pressure to the Trump administration to seek an off-ramp to the war. Qatar’s Foreign Ministry said Tuesday there have been “positive responses” from the US and Iran to ongoing mediation efforts.
However, Iran continues to assault ships going through the Strait of Hormuz, and the US has twice launched limited strikes on Iran’s Qeshm Island since early last week. Also, risks to Middle Eastern energy infrastructure persist after Saudi Arabia’s East-West pipeline was targeted Monday in the Medina region by Houthi Rebels.
Despite the ongoing US-Iran conflict, oil supplies are still leaving the Middle East. Combined exports from Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait climbed 10% to 15.53 million bpd in October, roughly in line with levels shipped at the start of the year, according to tanker-tracking data compiled by Bloomberg.
Higher Saudi crude output is bearish for crude prices. Saudi Arabia said its Oct crude production rose by +970,000 bpd to 9.2 million bpd (+12% m/m), recovering further from a 36-year low in August. However, Saudi oil production continues to be threatened by Houthi missile attacks on Saudi Arabia and by the Houthi threats to oil shipments near the Bab-al-Mandeb Strait.
On the positive side for crude, Saudi Arabian state producer Aramco last Thursday cut its crude prices for Asian buyers next month by less than expected. Aramco cut its crude price for Asian buyers for December delivery by $2 a barrel, less than market expectations of a $5 decrease from November.
Recent attacks by Ukraine on Russian oil infrastructure have curbed Russian crude production and exports. Ukraine has attacked six of Russia’s ten largest oil-processing plants in recent months. According to EA Analytics, Russian crude-processing rates averaged 3.51 million bpd in July, the lowest in 24 years, amid damage to Russian energy infrastructure caused by drone and missile attacks from Ukraine. Russian crude processing rates recovered slightly to 3.98 million bpd in September as damaged refineries struggle to come back online.
On the bearish side for crude, the International Energy Agency (IEA) on September 11 warned that high oil prices and restricted oil supply will cause the biggest drop in global oil demand this year since the Covid-19 pandemic. Despite the projected demand drop, the IEA raised its estimate for this year’s global oil deficit to 1.7 million bpd from last month’s 1.3 million bpd estimate due to the restricted supply caused by the US-Iran war. The IEA said the return of a global oil surplus will be delayed until 2027, later than its previous estimate of late 2026.
On November 1, OPEC+ agreed to keep oil production quotas unchanged for December. As a bearish factor for crude, OPEC delegates on August 2 approved their final increase of +188,000 bpd in crude production for September. On paper, the group has restored all 1.65 million bpd of the supply cutback it made in 2023 and said it plans to hold output steady for the rest of the year after the September hike. However, OPEC+ may struggle to deliver planned production increases amid Middle East shipping disruptions. OPEC’s Oct crude production rose by +930,000 bpd to an 8-month high of 22.8 million bpd.
Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell -7.7% w/w to 88.32 million bbl in the week ended November 6, the lowest level in more than 3 months.
Last Wednesday’s EIA report showed that (1) US crude oil inventories as of October 30 were -5.1% below the seasonal 5-year average, (2) gasoline inventories were -0.9% below the seasonal 5-year average, and (3) distillate inventories were -12.7% below the 5-year seasonal average. In a bearish factor, US crude oil production in the week ending October 30 rose +0.1% w/w to a new record high of 14.003 bpd.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ended November 6 rose by +1 rig to a 1.5-year high of 463 rigs.
On the date of publication, Rich Asplund did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
