October WTI crude oil (CLV26) on Friday closed down -2.43 (-2.37%), and October RBOB gasoline (RBV26) closed down -0.0860 (-2.53%).
Oct WTI oil prices on Friday fell back after Thursday’s +6.7% rally to a 3.5-month high. Oil prices fell back after the International Energy Agency (IEA) on Friday 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.
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There were reports that two ships were struck by unidentified projectiles near Oman on Thursday, presumably by Iran. Iran said earlier this week that it is ready for a more intense war and will escalate counterstrikes if the US continues attacking its territory and infrastructure. The prospect of a lengthy conflict that limits crude supplies from the Middle East is underpinning crude oil prices.
Crude also has support as Yemen’s Houthi rebels target energy facilities in Saudi Arabia, forcing several oil facilities to halt production. Saudi Arabia on Thursday said its crude production in August fell to 6.238 million bpd, the lowest since 1990.
The Houthi rebels captured the strategic Red Sea port city of Mokha on Thursday, 50 miles from the narrow Bab al-Mandab Strait 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, but over the past two months, 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 as a result 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.
Crude prices also have support on concerns that Israel could be dragged back into the US-Iran conflict. Israeli Defense Minister Katz said last Thursday that an Iranian attack on Israel would free Israel from any existing restrictions in a response against the regime in Iran. Israel has ramped up attacks on Iran-backed Hezbollah in Lebanon, dampening the prospects of ending hostilities in the Middle East and a quick reopening of the Strait of Hormuz. In addition, Israel has struck Iran-backed Hamas in Gaza, while the Yemen-based Houthis have attacked ships in the Red Sea.
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.
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 fell -16% w/w to 92.64 million bbl in the week ended September 4.
Thursday’s weekly EIA report was mostly bearish for crude oil and products. EIA crude inventories fell by -391,000 bbl, a smaller draw than expectations of -1.35 million bbl. Also, EIA gasoline supplies unexpectedly rose by +1.27 million bbl versus expectations of a -1.25 million bbl draw. In addition, EIA distillate stockpiles rose by +2.09 million bbl versus expectations of a -700,000 bbl draw. Finally, US crude production rose +0.6% w/w last week to a record 13.947 million bpd. On the positive side, crude supplies at Cushing, the delivery point of WTI futures, fell by -684,000 bbl.
Thursday's EIA report showed that (1) US crude oil inventories as of September 4 were +0.1% above the seasonal 5-year average, (2) gasoline inventories were -5.5% below the seasonal 5-year average, and (3) distillate inventories were -14.0% below the 5-year seasonal average. US crude oil production in the week ending September 4 rose +0.6% w/w to a record 13.947 million bpd.
Baker Hughes reported Friday that the number of active US oil rigs in the week ended September 11 rose by +1 to 450 rigs, modestly below the 1.25-year 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. For more information please view the Barchart Disclosure Policy here.
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