Crude Prices Tumble on Dollar Strength and Large Build in EIA Inventories

Rich Asplund Barchart Wed Oct 23, 10:30AM CDT
Stacked oil barrels by JONGHO SHIN via iStock

December WTI crude oil (CLZ24) today is down -1.13 (-1.58%), and December RBOB gasoline (RBZ24) is down -3.83 (-1.88%).

Crude and gasoline prices today are moderately lower.  Today's rally in the dollar index (DXY00) to a 2-3/4 month high is undercutting energy prices.  Also, renewed efforts to secure a cease-fire to hostilities in the Middle East are reducing geopolitical risks and are negative for crude prices.  Crude oil extended its losses today after weekly EIA crude inventories rose more than expected.  

Optimism that a cease-fire can be obtained in the Middle East between Israel and, Hamas and Hezbollah is taking out the risk premium in crude prices.  US Secretary of State Blinder is in the Middle East to persuade Israel to end its attacks against Hamas and Hezbollah.  Blinder and Israeli Prime Minister Netanyahu agreed the recent killing of Hamas leader Sinwar opened new possibilities for ending the conflict in Gaza.  

A decline in crude oil held worldwide on tankers is bullish for prices.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days fell by -5.4% w/w to 58.8 million bbl in the week ended October 18.

Crude prices have support from the likelihood that Israel will retaliate against Iran for its missile attack on Israel on October 1, which could further escalate hostilities in the Middle East.  JPMorgan Chase said that given the low level of global oil inventories, the odds favor a sustained geopolitical premium in crude prices until the conflict between Israel and Iran is resolved.  

Crude demand in China has weakened and is a bearish factor for oil prices.  According to data compiled by Bloomberg, China's total apparent oil demand in Sep fell -6.98% y/y to 14.176 million bpd, and total Chinese oil demand this year (Jan-Sep) is down -3.8% y/y to 13.99 million bpd.

A bearish factor for crude oil is ramped-up crude output in Libya after the resolution of a political standoff that had curbed the country's crude production and exports.  On October 13, Libya's National Oil Corp said that Libya's crude production rose to 1.3 million bpd, the most in two months, which boosted global crude supplies.

Crude prices found support after OPEC+ on September 5 agreed to pause its scheduled crude production hike of 180,000 bpd in October and November due to recent weakness in crude prices and signs of fragile global energy demand.  However, the Financial Times reported on September 26 that Saudi Arabia is ready to abandon its unofficial oil price target of $100 a barrel to regain its market share and is committed to returning its crude production as planned on December 1.   OPEC crude production in September fell -480,000 bpd to an 8-month low of 26.51 million bpd

An increase in Russian crude exports is bearish for crude.  Weekly vessel-tracking data from Bloomberg showed Russian crude exports rose by +150,000 bpd to 3.46 million bpd in the week to October 20.  Conversely,  Russia's Energy Ministry reported last Wednesday that Russia's Sep crude production was 8.97 million bpd, down -13,000 bpd from Aug and just below the 8.98 million bpd output target it agreed to with OPEC+.

Today's weekly EIA report was mainly bearish for crude prices.  EIA crude inventories rose +5.47 million bbl, far more than expectations of +1.0 million bbl.  Also, EIA gasoline supplies unexpectedly rose +878,000 bbl versus expectations of a -1.9 million bbl draw.  In addition, EIA distillate stockpiles fell -1.1 million bbl, a smaller draw than expectations of -2.0 million bbl.  On the positive side, crude supplies at Cushing, the delivery point of WTI futures, fell -346,000 bbl.

Today's EIA report showed that (1) US crude oil inventories as of October 18 were -3.6% below the seasonal 5-year average, (2) gasoline inventories were -2.9% below the seasonal 5-year average, and (3) distillate inventories were -9.0% below the 5-year seasonal average.  US crude oil production in the week ending October 18 was unchanged w/w at a record 13.5 million bpd.

Baker Hughes reported last Friday that active US oil rigs in the week ending October 18 rose by +1 rig to 482 rigs, just above the 2-1/2 year low of 477 rigs posted in the week ending July 19.  The number of US oil rigs has fallen over the past year from the 4-year high of 627 rigs posted in December 2022.
 



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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.