Crude Prices Supported By Russian Energy Sanctions And Falling EIA Inventories

December WTI Crude Oil (CLZ25) closed up +0.33 (+0.55%) on Wednesday and December RBOB Gasoline (RBZ25) closed up +0.0273 (+1.47%).

Crude oil prices rose on Wednesday amid an outlook for tighter global oil supplies. Crude oil prices rose on expectations that President Trump will comply and apply new oil sanctions on Russia to pressure Russian President Putin to negotiate to end the war in Ukraine. The crude oil price added to its gains today after EIA weekly crude oil inventories unexpectedly fell and gasoline supplies fell to an 11-month low. However, crude oil retreated from its best level on Wednesday after the dollar strengthened.

Crude oil rallied on Wednesday after the US representative to NATO said: “We have implemented sanctions on Russian energy and we plan to enforce them.” The Trump administration last Wednesday announced sanctions on Rosneft PJSC and Lukoil PJSC, Russia’s largest oil producers, due to “Russia’s lack of serious commitment to a peace process to end the war in Ukraine.” Meanwhile, the EU adopted a ban on transactions with Rosneft and Gazprom Nef and sanctioned an additional 117 shadow fleet vessels and 45 entities that have helped Russia evade sanctions, including 12 companies in China and Hong Kong.

Crude oil prices also have remaining support from Monday on news of a preliminary trade deal between the United States and China, which is expected to be ratified by President Trump and Xi at a summit on Thursday.

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 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.

Vortexa reported on Monday that crude oil stored on tankers that have been parked for at least 7 days increased +12% p/p to 89.75 million barrels in the week ending October 24. Notably, the IEA forecast a record global oil surplus of 4.0 million bpd by 2026 on October 14.

Additionally, Bloomberg reported on Monday that OPEC+, at its meeting this weekend, will focus on a base case of a third monthly increase in oil production of 137,000 bpd by December. This would be in line with market consensus. 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.

Wednesday’s EIA weekly report was mainly bullish for crude oil and its products. EIA crude oil inventories unexpectedly fell -6.86 million bbl versus expectations for an increase of +1.2 million bbl. Additionally, EIA gasoline supplies fell -5.9 million bbl to an 11-month low, a larger drop than expectations of -1.9 million bbl. Additionally, EIA distillate stocks fell by -3.36 million bbl, a larger drop than expectations of -1.9 million bbl. On the negative side, US crude oil production in the week ending October 24 rose to an all-time high of 13.644 million bpd, and crude supplies at Cushing, the delivery point for WTI futures, increased by +1.33 million barrels.

Wednesday’s EIA report showed that (1) U.S. crude oil inventories as of Oct. 24 were -5.8% below the 5-year seasonal average, (2) gasoline inventories were -2.7% below the 5-year seasonal average, and (3) distillate inventories were -8.4% below the 5-year seasonal average. US crude oil production in the week ending October 24 increased +0.1% w/w to an all-time high of 13.655 million bpd.

Baker Hughes reported last Friday that the number of active US oil rigs in the week ending October 24 increased by +2 rigs to 420 rigs, modestly above the 4-year low of 410 rigs from August 1. Over the past 2.5 years, the number of oil rigs in the US 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

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