Crude Prices Jump on Dollar Weakness and Supportive EIA Report

April WTI crude oil (CLJ24) this morning is up +2.49 (+3.19%), and Apr RBOB gasoline (RBJ24) is up +5.10 (+2.01%).

Crude oil and gasoline prices this morning are moderately higher.  Today’s decline in the dollar index (DXY00) to a 1-month low supports energy prices.  Crude prices extended their gains after today’s weekly EIA report showed crude supplies rose less than expected and gasoline stockpiles fell more than expected.   Also, today’s rally in equities boosts confidence in the economic outlook, which is positive for energy demand.

Crude has carryover support from Tuesday when China set its annual growth target at around 5%, which bolstered speculation the Chinese government will have to boost stimulus measures to attain that goal.

Crude has support after OPEC+ announced on Sunday that it will extend its current crude production cuts of about 2 million bpd until the end of June.  The group said its crude production cuts will be “returned gradually subject to market conditions” after the second quarter.

OPEC Feb crude production rose +110,000 bpd to 26.680 million bpd, a bearish factor for oil prices as Iraq and UAE continue to pump above their production quotas.

A recovery in Russian crude refining from Ukranian drone attacks is negative for prices.  Bloomberg calculations show Russia processed 5.44 million bpd of crude during the Feb 15-28 period, more than +4% above levels in the first half of February.  Several Russian oil processing and storage facilities have been targeted and damaged by Ukrainian drone attacks but have been repaired and are running near capacity.

A report from Vortexa on Monday weighed on crude prices as it said OPEC+ compliance with crude production cuts is still “questionable.” The report said that Russian oil exports were about 500,000 bpd above the OPEC+ commitments, and there are “little indications that Russia is actively cutting either crude production or exports.”  An increase in Russian crude oil exports is negative for crude oil prices.  Tanker-tracking data from Vortexa, monitored by Bloomberg, shows Russian crude exports in the week to Feb 25 rose about +365,000 bpd from the prior week to 3.5 million bpd.

Crude prices are supported by concern that the Israel-Hamas war will widen to Lebanon.  Hezbollah and Israel have traded fire almost daily since the Israel-Hamas war erupted on Oct 7.  Also, the U.S. and UK have engaged in airstrikes against Houthi rebels in Yemen in retaliation for Houthi attacks on commercial shipping in the Red Sea.  Attacks on commercial 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 crude oil supplies.

Strong oil-product consumption in India, the world’s third largest crude consumer, is bullish for oil prices after India’s Jan oil-product consumption 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 worldwide on tankers that have been stationary for at least a week fell -2.4% w/w to 68.60 million bbl as of Mar 1.

On Nov 30, OPEC+ agreed to cut crude production by -1.0 million bpd through June 2024.  However, a Bloomberg survey on Thursday showed the group cut production by only -490,000 bpd in January, less than the official -1.0 million bpd cut.  Meanwhile, on Dec 21, Angola announced it was leaving OPEC amid a dispute over oil production quotas.

Saudi Arabia said on Nov 30 that it would maintain its unilateral crude production cut of 1.0 million bpd through Q1-2024.  The move would maintain Saudi Arabia’s crude output at about 9 million bpd, the lowest level in three years.  Russia also said it will deepen its voluntary oil export cuts by 200,000 bpd to 500,000 bpd in Q1 of 2024.  

Today’s weekly EIA report is bullish for crude after EIA crude inventories rose +1.37 million bbl, less than expectations of +2.7 million bbl.  Also, EIA gasoline stockpiles fell -4.46 million bbl, a larger draw than expectations of -1.75 million bbl.  In addition, EIA distillate supplies fell -4.13 million bbl, a larger draw than expectations of -663,000 bbl.

Today’s EIA report showed that (1) U.S. crude oil inventories as of Mar 1 were -1.3% below the seasonal 5-year average, (2) gasoline inventories were -2.5% below the seasonal 5-year average, and (3) distillate inventories were -9.9% below the 5-year seasonal average.  U.S. crude oil production in the week ending Mar 1 fell -0.8% w/w to 13.2 million bpd, falling back from the prior week’s record high of 13.3 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Mar 1 rose by +3 rigs to a 5-month high of 506 rigs, modestly above the 2-year low of 494 rigs posted on Nov 10.  The number of U.S. oil rigs has fallen over the past year from the 3-3/4 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.

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