April WTI crude oil (CLJ24) this morning is down -0.62 (-0.79%), and Apr RBOB gasoline (RBJ24) is down -4.64 (-1.79%).
Crude oil and gasoline prices this morning gave up an early advance and are moderately lower, with crude falling from a 3-1/2 month high on a bearish weekly EIA inventory report. Also, today’s rally in the dollar index to a 1-week high is weighing on energy prices. Crude prices initially moved higher today on continued tensions in the Middle East and expectations that OPEC+ will next week decide to extend roughly 2 million bpd of crude production cuts beyond March.
Today’s global economic news was weaker than expected and bearish for energy demand and crude prices. US Q4 GDP was revised down by -0.1 to 3.2% (q/q annualized) from the previously reported 3.3%. Also, the economic confidence index of the Eurozone Feb unexpectedly fell -0.7 to 95.4, weaker than expectations of an increase to 96.6.
Crude prices are supported by concern that the Israel-Hamas war will expand to Lebanon. Hezbollah and Israel have traded fire almost daily since the Israel-Hamas war erupted on October 7. Also, the US and UK engaged in airstrikes against Houthi rebels in Yemen in retaliation for Houthi attacks on merchant shipping in the Red Sea. Attacks on merchant shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global oil supplies.
Crude prices have also been supported by Ukrainian drone attacks on Russian refineries and oil storage facilities, which have limited Russian fuel exports. On February 3, a drone strike by Ukraine damaged Russia’s Lukoil PJSC facility in Volgograd, which processed 289,000 bpd of oil in January, or more than 5% of Russia’s total crude processing volume. On January 25, a drone strike damaged Russia’s Rosneft PJSC’s major Tuapse refinery on Russia’s Black Sea. Russia said on January 26 that the Tuapse refinery, which processed 180,000 bpd of oil in the first half of January, would be shut down at least until February. In recent weeks, several Russian oil processing and storage facilities have been targeted and damaged by Ukrainian drone strikes, increasing the risks of reducing Russian crude exports.
An increase in Russian oil exports is negative for oil prices. Tanker tracking data from Vortexa, monitored by Bloomberg, shows Russian crude exports in the week to February 25 rose by about +365,000 bpd from the previous week to 3.5 million bpd.
Strong consumption of petroleum products in India, the world’s third largest crude consumer, is bullish for oil prices after Jan India’s consumption of petroleum products rose +8.3% y/y to 20 MMT, the most in 9 months.
A decline in crude in floating storage is bullish for prices. Monday’s weekly data from Vortexa showed that the amount of crude oil held globally on tankers that have been stationary for at least a week fell -7.5% w/w to 66.43 million bbl as of February 23.
On November 30, OPEC+ agreed to cut crude production by -1.0 million bpd until June 2024. However, a Bloomberg survey on Thursday showed the group cut production by just -490,000 bpd in January, less than the official -1.0 million bpd . Meanwhile, on December 21, Angola announced it was leaving OPEC amid a dispute over oil production quotas.
Saudi Arabia said on November 30 that it would maintain its unilateral crude output of 1.0 million bpd until Q1-2024. The move would keep Saudi Arabia’s crude output at about 9 million bpd, the lowest level in three years. Russia also said it would deepen its voluntary export cuts from 200,000 bpd to 500,000 bpd in Q1 of 2024. OPEC Jan crude output fell -1.59 million bpd to 26.570 million bpd, a 2-1/2-year low.
Today’s weekly EIA report was bearish for crude and its products. EIA crude inventories rose by +4.2 million bbl, above expectations of +3.7 million bbl. Also, EIA distillate inventories fell -510,000 bbl, a smaller draw than expectations of -2.0 million bbl. In addition, crude inventories at Cushing, the WTI futures delivery point, rose +1.46 million bbl.
Today’s EIA report showed that (1) US crude oil inventories through February 23 were -0.5% below the seasonal 5-year average, (2) gasoline inventories were -2.6% below the seasonal 5-year average, and (3) distillate. inventories were -9.7% below the 5-year seasonal average. US crude oil production in the week ended February 23 was unchanged w/w at a record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ended February 23rd rose by +6 rigs to 503 rigs, modestly above the 2-year low of 494 rigs posted on November 10th. The US oil rig count fell over last year from the 3-3/4-year high of 627 rigs posted in December 2022.
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