Crude oil prices fall due to the strength of the dollar and abundant global supply

November WTI Crude Oil (CLX25) was down -0.17 (-0.30%) today and November RBOB Gasoline (RBX25) closed down -0.0191 (-1.04%).

Crude oil and gasoline prices gave up an early advance today and turned lower as the dollar (DXY00) strengthened. Crude oil is also being weakened by the negative carryover from last Thursday, when President Trump said he will meet with Russian President Putin to discuss ending the war in Ukraine, raising the possibility of an increase in Russian oil supplies.

Crude oil losses are limited due to easing trade tensions between the United States and China, which support global growth prospects and energy demand, following President Trump’s statement that he expects a “really great trade deal” with China.

Concerns about a global oversupply are a major bearish factor for crude oil prices. Last Tuesday, the IEA forecast a record global oil surplus of 4.0 million bpd by 2026.

Cooling tensions in the Middle East have reduced some of the risk premium in crude oil prices, weighing on crude as the likelihood of disruptions to the region’s crude supplies following the ceasefire agreement between Israel and Hamas diminishes.

A decline in crude oil stored in tankers around the world is a bullish factor for oil prices. Vortexa reported on Monday that crude oil stored on tankers that have been parked for at least seven days fell -12% p/p to 78.44 million barrels in the week ending October 17.

Crude oil prices found support after OPEC+ agreed on October 5 to a 137,000 bpd increase in its crude production target, starting in November, which was lower than market expectations of a possible 500,000 bpd production increase. OPEC+ is in the midst of increasing production by another 1.66 million bpd to fully reverse the 2.2 million bpd production cut seen in early 2024. OPEC crude oil production in September increased by +400,000 bpd to 29.05 million bpd, the highest in two and a half years.

Reduced crude oil exports from Russia support oil prices. Ukraine has attacked at least 28 Russian refineries in the past two months, exacerbating Russia’s fuel crisis and limiting Russia’s crude oil export capabilities. Ukrainian drone and missile attacks on Russian refineries and oil export terminals have limited Russia’s total seaborne fuel shipments to 1.88 million bpd in the first ten days of October, the lowest average in more than 3.25 years.

The prospects of higher crude oil production in Iraq are expected to boost global oil supplies, which is bearish for crude oil prices. Iraq recently announced that it had reached an agreement with the Kurdistan Regional Government to resume oil exports from the Kurdish region via a pipeline to Turkey, which had been suspended for the past two years due to a dispute over payments. Iraqi Foreign Minister Hussein said the resumption of crude exports could add 500,000 bpd of fresh oil supplies to global markets.

Crude oil prices are supported by concerns that the ongoing war in Ukraine could lead to additional sanctions on Russian energy exports, reducing global oil supply. The United States has proposed that G7 allies impose tariffs of up to 100% on China and India for their purchases of Russian oil in an effort to convince Russia to end the war in Ukraine.

Last Thursday’s EIA report showed that (1) US crude oil inventories as of October 10 were -3.4% below the 5-year seasonal average, (2) gasoline inventories were +0.1% above the 5-year seasonal average, and (3) distillate inventories were -6.9% below the 5-year seasonal average. US crude oil production in the week ending October 10 rose +0.1% w/w to a record 13.636 million bpd.

Baker Hughes reported last Friday that the number of active US oil rigs in the week ending October 17 was unchanged at 418 rigs, modestly above the 4-year low of 410 rigs from August 1. Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.

On the date of publication, Rich Asplund had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com