December WTI crude oil (CLZ26) closed up +0.31 (+0.34%) on Friday, and December RBOB gasoline (RBZ26) closed up +0.0133 (+0.48%).
Crude oil and gasoline prices fluctuated between gains and losses on Friday and finally settled higher. Crude found support Friday as Ukraine ramped up drone attacks on Russian refineries, potentially leading to a further squeeze of global energy supplies. Crude gains were limited on signs of progress in diplomatic efforts to end the war in Iran, which could lead to a full resumption of energy supplies from the Middle East.
Crude prices rose Friday as Ukraine intensified its attacks on Russian refineries, having launched a drone attack on a sixth Russian crude-processing plant in the past week. Russia's Yanos refinery, which has a capacity of 300,000 bpd, has halted operations following a drone attack late Wednesday, which could further curb global distillate supplies. Wednesday’s weekly EIA report showed US distillate inventories tumbled to a 23-year low.
Signs that the US and Iran are moving closer to a potential breakthrough in efforts to end the war are limiting the upside in crude prices, as Iran has shown a willingness to discuss issues related to its nuclear program that were previously off the table. Qatar, which is mediating efforts to end the war, said Friday that Emir Sheikh Tamin Bin Hamad Al-Thani spoke with President Trump about efforts to resolve differences between Iran and the US and secure a comprehensive agreement to end the conflict. Crude prices are also being pressured by speculation that Democrats retaking Congress in the US midterm elections could accelerate efforts to end the US-Iran war.
On the positive side for crude, Saudi Arabian state producer Aramco on Thursday cut its crude prices for Asian buyers next month by less than expected. Aramco cut its crude price for Asian buyers for December delivery by $2 a barrel, less than market expectations of a $5 decrease from November.
Despite the ongoing US-Iran conflict, oil supplies are still leaving the Middle East. Combined exports from Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait climbed 10% to 15.53 million bpd in October, roughly in line with levels shipped at the start of the year, according to tanker-tracking data compiled by Bloomberg.
Higher Saudi crude output is bearish for crude prices. Saudi Arabia said its Oct crude production rose by +970,000 bpd to 9.2 million bpd (+12% m/m), recovering further from a 36-year low in August. However, Saudi oil production continues to be threatened by Houthi missile attacks on Saudi Arabia and by the Houthi threats to oil shipments near the Bab-al-Mandeb Strait.
Recent attacks by Ukraine on Russian oil infrastructure have curbed Russian crude production and exports. Ukraine has attacked six of Russia’s ten largest oil-processing plants in recent months. According to EA Analytics, Russian crude-processing rates averaged 3.51 million bpd in July, the lowest in 24 years, amid damage to Russian energy infrastructure caused by drone and missile attacks from Ukraine. Russian crude processing rates recovered slightly to 3.98 million bpd in September as damaged refineries struggle to come back online.
On the bearish side for crude, the International Energy Agency (IEA) on September 11 warned that high oil prices and restricted oil supply will cause the biggest drop in global oil demand this year since the Covid-19 pandemic. Despite the projected demand drop, the IEA raised its estimate for this year’s global oil deficit to 1.7 million bpd from last month’s 1.3 million bpd estimate due to the restricted supply caused by the US-Iran war. The IEA said the return of a global oil surplus will be delayed until 2027, later than its previous estimate of late 2026.
Last Sunday, OPEC+ agreed to keep oil production quotas unchanged for December. As a bearish factor for crude, OPEC delegates on August 2 approved their final increase of +188,000 bpd in crude production for September. On paper, the group has restored all 1.65 million bpd of the supply cutback it made in 2023 and said it plans to hold output steady for the rest of the year after the September hike. However, OPEC+ may struggle to deliver planned production increases amid Middle East shipping disruptions. OPEC's Oct crude production rose by +930,000 bpd to an 8-month high of 22.8 million bpd.
Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell -11% w/w to 78.36 million bbl in the week ended October 30, the lowest level in more than 3 months.
Wednesday’s EIA report showed that (1) US crude oil inventories as of October 30 were -5.1% below the seasonal 5-year average, (2) gasoline inventories were -0.9% below the seasonal 5-year average, and (3) distillate inventories were -12.7% below the 5-year seasonal average. In a bearish factor, US crude oil production in the week ending October 30 rose +0.1% w/w to a new record high of 14.003 bpd.
Baker Hughes reported Friday that the number of active US oil rigs in the week ended November 6 rose by +1 rig to a 1.5-year high of 463 rigs.
On the date of publication, Rich Asplund did not directly have a position 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.