Crude Prices Slump on OPEC Plans to Boost Oil Production

Oct WTI crude oil (CLV24) Friday closed down -2.36 (-3.11%), and Oct RBOB gasoline (RBV24) closed down -1.48 (-0.70%).

Crude oil and gasoline prices Friday fell sharply.  Friday's rally in the dollar index to a 1-1/2 week high weighed on energy prices.  Crude also came under pressure Friday on a Reuters report that said OPEC+ plans to proceed with its previously announced production hikes in the fourth quarter.

Reuters reported Friday that several delegates within the OPEC+ coalition said they expect to add 543,000 bpd of crude output in October as it gradually restores the crude output halted since late 2022.  The International Energy Agency (IEA) predicts that the global oil market will tip into surplus next quarter if OPEC+ increases production.

Friday's global economic news was mixed for energy demand and crude prices.  On the negative side, Japan's July industrial production rose +2.8% m/m, weaker than expectations of +3.5% m/m.  Also, Japan's July jobless rate unexpectedly rose +0.2 to a 17-month high of 2.7%, showing a weaker labor market than expectations of no change at 2.5%.  On the positive side, the US Aug MNI Chicago PMI unexpectedly rose +0.8 to 46.1, stronger than expectations of a decline to 44.8.  Also, the Eurozone July unemployment rate unexpectedly fell -0.1 to a record low of 6.4%, showing a more robust labor market than expectations of no change at 6.5%.

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.  The halt to Libya's crude exports threatens to take out more than 1 million bpd of crude off the global market.  

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 last Sunday attacked sites in southern Lebanon to take out hundreds of Hezbollah missile launchers.

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+.

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.

Wednesday's EIA report showed that (1) US crude oil inventories as of August 23 were -3.8% below the seasonal 5-year average, (2) gasoline inventories were -3.3% below the seasonal 5-year average, and (3) distillate inventories were -9.9% below the 5-year seasonal average.  US crude oil production in the week ending August 23 fell -0.7% w/w to 13.3 million bpd, falling back from the previous week's record high of 13.4 million bpd.

Baker Hughes reported Friday that active US oil rigs in the week ending August 30 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 Tumble as OPEC+ May Proceed With Production Hikes
• Crude Closes Higher on Economic Optimism and Prospects for Tighter Global Oil Supplies
• Crude Rallies on Global Energy Demand Optimism and Supply Disruptions in Libya
• Crude Prices Decline on Dollar Strength and a Smaller Draw in Weekly EIA Inventories

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