Crude oil and gasoline prices saw incremental increases on Wednesday, with crude reaching a 2-1/2 week high. The surge is attributed to growing apprehensions about disruptions to Middle East crude supplies, compelling oil shippers to avoid the Red Sea due to attacks on commercial shipping by Houthi militants. However, crude prices retraced slightly following a bearish report from the Energy Information Administration (EIA), revealing an unexpected rise in weekly U.S. oil supplies and record U.S. crude production.
Geopolitical tensions are contributing to the bullish trend in crude prices, particularly as BP, Equinor, and Euronav joined forces in suspending crude oil shipments through the Red Sea, responding to the escalating attacks on ships in the region. The ongoing attacks on oil tankers in the Middle East have forced shippers to redirect shipments around the southern tip of Africa, causing disruptions in crude oil supplies. Since October, Iranian-backed Houthi militants have targeted at least twenty merchant ships around Yemen in the Red Sea.
Wednesday’s global economic news exceeded expectations, providing additional support for energy demand and crude prices. Notably, U.S. existing home sales for November unexpectedly rose by 0.8% month-on-month to 3.82 million, surpassing predictions of a decline to 3.78 million. The Conference Board’s U.S. consumer confidence index for December also exceeded expectations, rising by 9.7 to a five-month high of 110.7. Furthermore, the Eurozone’s consumer confidence index for December rose by 1.8 to a five-month high of -15.1, surpassing expectations of -16.3.
A contributing factor to the support for crude prices was the American Automobile Association’s (AAA) projection on Monday, indicating that a record 7.5 million people are expected to fly between December 23 and January 2, the highest since the AAA began tracking data in 2000.
Conversely, an increase in Russian crude oil exports is acting as a bearish factor. Tanker-tracking data shows that refined fuel shipments from Russia rose to 3.2 million barrels per day (bpd) in the four weeks to December 10, a 114,000 bpd increase from the prior week and the highest in five months.
On November 30, OPEC+ agreed to cut crude production by 1.0 million bpd through June 2024. However, crude prices initially declined as no details were provided on the distribution of cuts among members or how Russia’s -300,000 bpd export cut would factor in. Disappointingly, the final details, including national production levels, will be announced individually by each country, indicating that the reductions may be voluntary.
Saudi Arabia announced on November 30 that it would maintain its unilateral crude production cut of 1.0 million bpd through Q1-2024, keeping its crude output at around 9 million bpd, the lowest in three years. Russia also pledged to deepen its voluntary oil export cuts by an additional 200,000 bpd to 500,000 bpd in Q1 of 2024. In November, OPEC crude production fell by 140,000 bpd to 28.050 million bpd.
The ongoing discord between Angola and other OPEC+ members remains a bearish factor, signaling more internal conflicts. Angola’s OPEC governor, Pedro, stated on November 30 that the country rejects OPEC’s quota, asserting that “Angola will produce above the quota determined by OPEC.” As Africa’s second-largest crude producer, Angola plans to pump 1.18 million bpd in January, exceeding OPEC’s set quota of 1.11 million.
Weak demand for crude in China, the world’s largest crude importer, is further contributing to bearish sentiments. China’s crude imports for November were 42.45 million metric tons, down 13% month-on-month from October and a seven-month low.
However, a decline in crude in floating storage is offering some support to prices. Weekly data from Vortexa on Monday revealed that the amount of crude oil held worldwide on tankers stationary for at least a week fell by 13% week-on-week to 73.32 million barrels as of December 15.
Despite the overall picture, Wednesday’s EIA crude report was bearish for crude prices. EIA crude inventories unexpectedly rose by 2.91 million barrels versus expectations of a 2.3 million barrel draw. Gasoline stockpiles also increased by 2.91 million barrels, surpassing expectations of 1.35 million barrels. Additionally, distillate supplies rose by 1.49 million barrels, exceeding expectations of 691,000 barrels. Crude supplies at Cushing, the delivery point of WTI futures, rose by 1.686 million barrels to a four-month high.
The EIA report highlighted that, as of December 15, U.S. crude oil inventories were 0.7% below the seasonal five-year average, gasoline inventories were 1.5% below the seasonal five-year average, and distillate inventories were 10.1% below the five-year seasonal average. U.S. crude oil production in the week ending December 15 rose by 1.5% week-on-week to a record 13.3 million bpd.
Baker Hughes reported last Friday that active U.S. oil rigs in the week ending December 15 fell by 2 rigs to 501 rigs, slightly above the 1-3/4 year low of 494 rigs from November 10. The number of U.S. oil rigs has decreased this year after a significant increase in 2021-22, going from the 18-year pandemic low of 172 rigs in August 2020 to a 3-1/2 year high of 627 rigs in December 2022.