In the latest market developments, January WTI crude oil (CLF24) has gained +0.93 (+1.36%), while Jan RBOB gasoline (RBF24) is up +4.29 (+2.17%) as of this morning.
This rebound comes after both crude oil and gasoline prices recovered from initial losses, experiencing a moderate increase. The recovery follows a notable drop earlier in the week, where crude oil hit a 5-1/2 month low and gasoline reached a 2-year low. These declines were attributed to concerns of oversupply, accentuated by signs of increased Russian crude exports.
The bearish impact of heightened Russian crude exports was evident in tanker-tracking data, revealing a rise in refined fuel shipments to 3.2 million bpd in the four weeks leading up to December 10. This marked an increase of +114,000 bpd from the previous week and the highest level in five months.
However, positive factors supporting crude oil include the projection from the American Automobile Association (AAA) that a record 7.5 million people are expected to fly between December 23 and January 2, the highest number since tracking began in 2000. Additionally, the U.S. Energy Department’s offer to buy up to 3 million bbl of sour crude for delivery in March, as part of refilling the strategic petroleum reserve, contributes to market optimism. This initiative builds on a previous tender for the same quantity in February, with monthly tenders planned through at least May 2024.
On the international front, OPEC+ reached an agreement on November 30 to cut crude production by -1.0 million bpd through June 2024. However, market disappointment ensued as no details were provided regarding the distribution of cuts among members or how Russia’s -300,000 bpd export reduction would factor in. Notably, the final details, including national production levels, will be announced individually by each country rather than in the customary OPEC+ communique. Saudi Arabia and Russia have committed to maintaining their production cuts, with Saudi Arabia’s output set at about 9 million bpd, the lowest in three years.
A notable bearish factor is the ongoing disagreement between Angola and other OPEC+ members. Angola’s rejection of OPEC’s quota, with plans to produce above the set limit, signals potential infighting among members. Angola, Africa’s second-largest crude producer, plans to pump 1.18 million bpd in January, exceeding the 1.11 million quota.
Geopolitical tensions in the Middle East, particularly attacks on oil tankers by Iranian-backed Houthi militants around Yemen, contribute to concerns that crude oil supplies may be disrupted. At least ten merchant ships have been attacked or approached since October.
On the downside, an increase in crude in floating storage, as indicated by Vortexa’s data, is bearish for prices. The amount of crude oil held worldwide on tankers stationary for at least a week rose +11% w/w to 79.87 million bbl as of December 8.
In the latest weekly EIA report, the data presented a mixed picture for crude prices. Crude inventories fell -4.26 million bbl, surpassing expectations, while gasoline supplies rose +409,000 bbl, falling short of projections. Unexpectedly, distillate stockpiles rose +1.49 million bbl. Cushing, the delivery point of WTI futures, saw a rise of +1.23 million bbl in crude supplies.
Key indicators from the EIA report show that U.S. crude oil inventories, gasoline inventories, and distillate inventories are -2.1%, -2.1%, and -12.1% below their respective seasonal 5-year averages. U.S. crude oil production remains unchanged at 13.1 million bpd, just below the record high of 13.2 million bpd.
Baker Hughes reported a decline of -2 rigs in active U.S. oil rigs for the week ending December 8, bringing the total to 503 rigs. This comes after a downward trend in the number of U.S. oil rigs throughout the year, following a peak of 627 rigs in December 2022.
These developments highlight the dynamic factors influencing global energy markets, with geopolitical tensions, production cuts, and supply-demand dynamics playing pivotal roles in shaping the trajectory of crude oil and gasoline prices.