January WTI crude oil (CLF26) on Wednesday closed up +0.21 (+0.36%), and January RBOB gasoline (RBF26) closed down -0.0082 (-0.46%).
Crude oil and gasoline prices extended this week's losses on Wednesday, with crude posting a 2-week low and gasoline slumping to a 4.75-year nearest-futures low. However, crude oil erased its losses and rallied on Wednesday afternoon after US forces intercepted and seized a sanctioned oil tanker off the coast of Venezuela. The seizure may make it more difficult for Venezuela to export its oil, as other shippers are now likely to be more reluctant to load cargoes from Venezuela.
Crude prices initially retreated on Wednesday due to concerns about a global oil glut. Wednesday's weekly EIA inventory report was mixed, as crude supplies fell more than expected while gasoline and distillate stockpiles rose more than expected.
Concerns about a global oil supply cut are bearish for prices after global commodities trader Trafigura said Tuesday that the global oil market is headed for a "super glut" next year as a wave of new supplies runs up against sluggish energy demand.
Weakness in the crude crack spread is a negative factor for oil prices. The crack spread fell to a 7-week low on Wednesday, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.
Also weighing on crude prices was last Thursday's action by Saudi Arabian state producer Aramco to cut the price of its Arab Light crude oil for Asian customers by 30 cents/bbl for January delivery, the lowest since January 2021, a sign of weaker energy demand.
Geopolitical risks are supporting crude prices. Last Tuesday, Interfax reported that Russian President Putin threatened to attack ships from nations helping Ukraine if attacks on Russian vessels don't stop. Recently, four Russian tankers have been attacked by drones in the Black Sea. Also, President Trump said airspace over Venezuela should be considered closed and that the US may soon start targeting drug cartels within Venezuela. Venezuela is the world's 12th-largest oil producer.
Reduced crude exports from Russia are underpinning crude prices. On November 19, Vortexa data showed Russia's oil product shipments fell to 1.7 million bpd in the first 15 days of November, the lowest in more than 3 years. Ukraine has targeted at least 28 Russian refineries over the past three months, exacerbating a fuel crunch in Russia and limiting Russia's crude export capabilities. Ukrainian drone and missile attacks recently damaged a Russian Baltic Sea oil terminal, forcing it to close. The Caspian Pipeline Consortium, which carries 1.6 million bpd of Kazakhstan's crude exports, was forced to close after a pipeline was damaged at one of its moorings. New US and EU sanctions on Russian oil companies, infrastructure, and tankers have also curbed Russian oil exports.
Crude also garnered support after OPEC+ on November 30 said it would stick to plans to pause production increases in Q1 of 2026. OPEC+ at its November 2 meeting announced that members will raise production by +137,000 bpd in December but will then pause the production hikes in Q1-2026 due to the emerging global oil surplus. The IEA in mid-October forecasted a record global oil surplus of 4.0 million bpd for 2026. OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has another 1.2 million bpd of production left to restore. OPEC's November crude production fell by -10,000 bpd to 29.09 million bpd.
Last month, OPEC revised its Q3 global oil market estimates from a deficit to a surplus, as US production exceeded expectations and OPEC also ramped up crude output. OPEC said it now sees a 500,000 bpd surplus in global oil markets in Q3, versus last month's estimate for a -400,000 bpd deficit. Also, the EIA raised its 2025 US crude production estimate to 13.59 million bpd from 13.53 million bpd last month.
Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell -7.9 w/w to 121.23 million bbls in the week ended December 5.
Wednesday's weekly EIA report was mixed for crude and products. On the bearish side, EIA gasoline inventories rose +6.4 million bbl, a larger build than expectations of +2.0 million bbl. Also, EIA distillate stockpiles rose by +2.5 million bbl, a larger build than expectations of +1.16 million bbl. In addition, crude supplies at Cushing, the delivery point of WTI futures, rose by +308,000 bbl. On the positive side, EIA crude inventories fell by -1.81 million bbl, a larger draw than expectations of -1.3 million bbl.
Wednesday's EIA report showed that (1) US crude oil inventories as of December 5 were -4.3% below the seasonal 5-year average, (2) gasoline inventories were -1.8% below the seasonal 5-year average, and (3) distillate inventories were -7.7% below the 5-year seasonal average. US crude oil production in the week ending December 5 rose +0.3% w/w to 13.853 million bpd, just below the record high of 13.862 million bpd from the week of November 7.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ending December 5 rose by +6 to 413 rigs, recovering from the 4-year low of 407 rigs reported on November 28. 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 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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