Oil tanker in open sea by StockStudio via Shutterstock
December WTI crude oil (CLZ26) closed down -0.78 (-0.76%) on Thursday, and December RBOB gasoline (RBZ26) closed down -0.0206 (-0.66%).
Dec WTI crude oil prices fell on Thursday as the market assesses mediation efforts to avert a possible US military attack on Iran after this Tuesday’s US mid-term elections. The Wall Street Journal reported that US Vice President Vance sent a letter to hardliner Mohsen Rezaee, secretary of Iran’s top security body, to see if a framework for negotiations exists. Iran said it has not yet replied to the letter. Axios reported Wednesday that Qatar is leading behind-the-scenes mediation efforts, supported by Pakistan, Saudi Arabia, Egypt, and Türkiye.
More News from Barchart
The news of negotiations followed the Wall Street Journal’s report Tuesday that the US has told several Persian Gulf countries to be prepared for a short, intense military campaign against Iran. The WSJ said President Trump hasn’t yet decided to proceed with the attack but is leaning toward an attack after next Tuesday’s mid-term elections.
In a bullish factor, Wednesday’s weekly EIA report showed US crude oil inventories fell by -1.9 million bbls, more than market expectations of a -1 million bbl decline and the fourth straight weekly drop. Gasoline inventories rose +3.87 million bbls, while distillate inventories fell -1.46 million bbls. In a bearish factor, US crude oil production rose to a new record high.
Despite the ongoing hostilities, oil continues to flow in the Middle East. Oil transiting the Strait of Hormuz so far in October was 16.7 million bpd according to Kpler and 15.4 million bpd according to Vortexa, approaching pre-war levels of about 19 million bpd. US Energy Secretary Wright said on Monday that Persian Gulf oil flows have recovered to about 80% of their pre-war level, though refined-product shipments remain constrained.
Higher Saudi crude output is bearish for crude prices. Saudi Arabia said its Sep crude production rose by 2 million bpd (+40% m/m) to 8.732 million bpd, recovering 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.
Recent attacks by Ukraine on Russian oil infrastructure have curbed Russian crude production and exports. Ukraine attacked Russian fuel-producing plants 15 times in September and 22 times in August, targeting five of Russia’s ten largest oil-processing plants. 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 October 4, OPEC+ agreed to keep oil production quotas unchanged for November. 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 Sep crude production rose by +1.12 million bpd to 20.71 million bpd.
Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +8% w/w to 87.42 million bbl in the week ended October 23.
Wednesday’s EIA report showed that (1) US crude oil inventories as of October 23 were -3.7% below the seasonal 5-year average, (2) gasoline inventories were -2.0% below the seasonal 5-year average, and (3) distillate inventories were -9.5% below the 5-year seasonal average. In a bearish factor, US crude oil production in the week ending October 23 rose +5.4% w/w to a new record high of 13.992 bpd as production more than recovered after a temporary decline due to Hurricane Isaias.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ended October 23 rose by +1 rig to 460, slightly below the 1.5-year high of 462 rigs posted on October 9.
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
