Crude Prices Close Lower on Energy Demand Woes and Increased Russian Crude Exports

Oct WTI crude oil (CLV24) Tuesday closed down -1.89 (-2.44%), and Oct RBOB gasoline (RBV24) closed down -3.73 (-1.75%).

Crude oil and gasoline prices settled moderately lower on Tuesday.  Crude prices came under pressure Tuesday after Goldman Sachs cut its 2025 Brent crude forecast to $77 a barrel from a prior estimate of $82 per barrel.  Tuesday's slump in the crude crack spread to a 3-1/2 year low is another bearish factor for crude prices.  In addition, an increase in Russian crude exports is negative for crude prices.

Weakness in the crude crack spread is bearish for oil prices as the crack spread Tuesday fell to a 3-1/2 year low, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.

An increase in Russian crude exports has boosted global supplies and is bearish for oil prices.  Weekly vessel-tracking data from Bloomberg showed Russian crude exports rose by +390,000 bpd to 3.35 million bpd in the week to August 25, the highest in nearly two months.  Meanwhile, increased Russian crude production is negative for oil prices after Russia's Energy Ministry reported last Friday that Russia's July crude production was 9.045 million bpd, about 67,000 bpd above the output target it agreed to with OPEC+.

Crude oil prices have support after Libya's eastern government declared force majeure on all oil fields, terminals, and crude export facilities as it called for a halt to all crude production and exports due to political conflict over who controls the country's central bank and oil revenues.

Oil prices are also supported by concern that an escalation of conflict in the Middle East could disrupt oil supplies after more than 100 Israeli warplanes Sunday attacked sites in southern Lebanon to take out hundreds of Hezbollah missile launchers.

A sharp decline in crude oil held worldwide on tankers is bullish for prices.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days fell by -24% w/w to 58.06 million bbl in the week ended August 23, the lowest in 4-1/2 years.

Concern about weaker US gasoline demand has prompted several US refiners to reduce refining operations, a bearish factor for crude prices.  Marathon Petroleum, the owner of the largest US refinery, said it plans to cut its refining capacity rate to 90% this quarter, the lowest for a Q3 since 2020.  Also, PBF Energy said it was cutting its refining capacity utilization rate to a three-year low, and Phillips 66 said it would cut its capacity rate to a two-year low.

OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies.  On June 2, OPEC+ extended the 2 million bpd of voluntary crude production cuts into Q3 but said they would gradually phase out the cuts over the following 12 months, beginning in October.  OPEC pledged to extend its crude production cap at about 39 million bpd to the end of 2025.  Also, the UAE was given a 300,000 bpd boost to its production target for 2025.  In June, OPEC crude production fell -80,000 bpd to 26.98 million bpd.

The consensus is that Wednesday's weekly EIA crude inventories will fall by -2.775 million bbl, and gasoline supplies will fall by -2.15 million bbl.

Last Wednesday's EIA report showed that (1) US crude oil inventories as of August 16 were -5.0% below the seasonal 5-year average, (2) gasoline inventories were -3.2% below the seasonal 5-year average, and (3) distillate inventories were -10.0% below the 5-year seasonal average.  US crude oil production in the week ending August 16 rose +0.8% w/w to match the record high of 13.4 million bpd from the week of August 2.

Baker Hughes reported last Friday that active US oil rigs in the week ending August 23 were unchanged at 483 rigs, modestly above the 2-1/2 year low of 477 rigs posted in the week ending July 19.  The number of US oil rigs has fallen over the past year from the 4-year high of 627 rigs posted in December 2022.
 

• Crude Prices Fall on Energy Demand Concerns and Increased Russian Crude Exports
• Crude Prices Rally on Middle East Supply Concerns
• Crude Rallies on Middle East Tensions and Libya's Call to Halt Crude Exports
• Crude Rallies on Dollar Weakness and Dovish Powell Comments

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