Crude Oil Prices Fall on Strong Dollar, Weak Stocks

December WTI Crude Oil (CLZ25) closed Tuesday down -0.49 (-0.80%), and December RBOB Gasoline (RBZ25) closed up +0.0067 (+0.35%).

Crude oil prices fell on Tuesday amid pressure from a stronger dollar, as the dollar index (DXY00) rose to a three-month high. Additionally, Tuesday’s stock market decline has dampened confidence in the economic outlook and energy demand. Crude losses are limited by carryover support from Sunday, when OPEC+ announced that further increases in crude production in the first quarter will be suspended.

The strength of the crude oil crack spread supports crude oil prices, after the spread rose to a two-and-a-half-month high on Tuesday. The higher crack differential encourages refiners to increase their purchases of crude oil and refine it into gasoline and distillates.

Oil prices are also supported by recent reports that the US military may be about to launch military attacks against Venezuela, which is the world’s 12th largest oil producer.

OPEC+ at its meeting on Sunday announced that members will increase production by 137,000 bpd by December, but will then pause production increases in the first quarter of 2026 due to the emerging global oil surplus. In mid-October, the IEA forecast a record global oil surplus of 4.0 million bpd by 2026. OPEC+ is trying to restore the entire 2.2 million bpd production cut it made in early 2024, but still has another 1.2 million bpd of output to restore. 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 three months, exacerbating fuel shortages in Russia 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, and have eliminated between 13% and 20% of Russia’s refining capacity by the end of October, reducing production by up to 1.1 million bpd. New US and EU sanctions on Russian oil companies, infrastructure and tankers have also curbed Russian oil exports.

Vortexa reported on Monday that crude oil stored on tankers that have been parked for at least 7 days fell -11% p/p to 86.91 million barrels in the week ending October 31.

The consensus is that Wednesday’s EIA weekly crude oil inventories fell by -286,000 bbl and gasoline supplies fell by -1.8 million bbl.

Last Wednesday’s EIA report showed that (1) US crude oil inventories as of October 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 31 fell -6 rigs to 414 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