Oil production with Iran flag by EVER STOCK via Shutterstock
November WTI crude oil (CLX26) closed up +2.45 (+2.71%) on Thursday, and November RBOB gasoline (RBX26) closed up +0.1421 (+4.36%).
Crude oil and gasoline prices settled sharply higher on Thursday as talks between the US and Iran to end the war remain deadlocked, keeping the Strait of Hormuz from fully reopening and tightening global oil supplies.
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Gains in crude oil accelerated on Thursday after the Wall Street Journal reported that the US is sending a third aircraft carrier strike group and an additional 10,000 troops to the Middle East and that President Trump told aides he expects to resume bombing Iran by the end of November.
Energy prices also have carryover support from Wednesday, when EIA gasoline inventories fell to a nearly 12-year low, and Russia extended its diesel export ban through October, further tightening the global market.
On the bearish side for crude, JPMorgan Chase said Wednesday that Middle East crude exports have rebounded to 17.5 million bpd, or about 98% of pre-war levels, although flows of gasoline, diesel and distillates were at 3 million bpd, or 58% of pre-war levels.
Signs of larger oil exports from Saudi Arabia are bearish for prices. Tracking data compiled by Bloomberg show Saudi Arabia’s crude exports stood at 5.28 million bpd in September, the highest in seven months. Saudi Arabia also said it restored about 3.5 million bpd of the East-West Pipeline’s 7 million bpd capacity on Monday after repairs restored the link damaged by drone strikes earlier this month. However, Saudi Arabia said that its crude production in August fell to 6.238 million bpd, the lowest since 1990.
The US and Iran remain at odds over key issues, including control over the Strait of Hormuz. US Secretary of State Rubio said last Wednesday that peace talks with Iran are being impeded by Iran’s Revolutionary Guard leaders. Iranian President Pezeshkian said last Wednesday that Iran won’t allow freedom of navigation through the Strait of Hormuz while sanctions and a US blockade remain in place.
The advances by the Houthi rebels to take territory along the Red Sea in Yemen are also contributing to concerns about tighter oil supplies from the Middle East. Earlier this month, the Houthis captured a pair of islands near the Bab-al-Mandeb Strait. That followed their seizure of Perim Island and the Red Sea port city of Mokha at the southern end of the Red Sea, putting the group in a stronger position to attack ships. Since the closure of the Strait of Hormuz, Saudi Arabia has pivoted to the Red Sea to export most of its oil over the past two months. However, escalating tensions with the Houthis have disrupted that route.
Vitol Group said that global oil markets are continuing to tighten, with the loss of about 2 million bpd from crude exports in the Middle East, and a further 2 million bpd from Russia because of Ukraine’s drone attacks. Data compiled by Bloomberg, Kpler and Vortexa showed that Saudi Arabia’s Aug crude exports dropped to about 3 million bpd, the lowest amount in 9 years.
Ukraine has intensified drone attacks on Russian oil infrastructure, curbing Russian crude production and exports. 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. The attacks on Russian oil infrastructure knocked Russia’s crude production in July to 8.89 million bpd, the lowest in six years, according to secondary source estimates published by OPEC. Meanwhile, Reuters reported on August 28 that Russia’s gasoline production fell to about 80,000 tons a day in August, only 70% of domestic demand, causing shortages across the country.
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.
As a bearish factor for crude, OPEC delegates on August 2 approved their final increase of +188,000 bpd in crude production for September. The group has now 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, the planned OPEC+ production increases may be difficult to achieve amid persistent US-Iran military attacks in the region. OPEC’s Aug crude production fell by -900,000 bpd to 19.91 million bpd.
Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +4.4% w/w to 92.49 million bbl in the week ended September 25.
Wednesday’s EIA report showed that (1) US crude oil inventories as of September 25 were +2.0% above the seasonal 5-year average, (2) gasoline inventories were -7.0% below the seasonal 5-year average, and (3) distillate inventories were -13.0% below the 5-year seasonal average. US crude oil production in the week ending September 25 rose +0.1% w/w to a new record high of 13.955 million bpd.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ended September 26 rose by +3 and matched the 16-month high of 455 rigs from the week of August 14.
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 is solely for informational purposes. This article was originally published on Barchart.com
