Crude Prices Slump on Heightened Energy Demand Concerns

Oct WTI crude oil (CLV24) Friday closed down -1.48 (-2.14%), and Oct RBOB gasoline (RBV24) closed down -2.98 (-1.55%).

Crude oil and gasoline prices retreated Friday, with crude posting a 14-month nearest-futures low and gasoline dropping to a 2-3/4 year nearest-futures low.   Weaker-than-expected global economic news Friday heightened concerns about energy demand and weighed on crude prices.   Also, Friday's action by Saudi Arabia to cut crude prices to Asian customers for October delivery signals weak demand and was negative for oil prices.    

Friday's global economic news was bearish for energy demand and crude prices.  US Aug nonfarm payrolls rose +142,000, weaker than expectations of +165,000.  Also, Eurozone Q2 GDP was revised lower to +0.2% q/q from the previously reported +0.3% q/q.  In addition, German July industrial production fell -2.4% m/m, weaker than expectations of -0.5% m/m.  Finally, Japan's July household spending rose +0.1% y/y, weaker than expectations of +1.2% y/y.

Friday's action by state-owned Saudi Aramco to cut its oil prices to Asian customers for October delivery by -70 cents to -$1.30 a barrel signals waning energy demand and is bearish for crude prices.

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

Crude prices found support Thursday after OPEC+ agreed to pause its scheduled crude production hike of 180,000 bpd in October and November due to recent weakness in crude prices and signs of fragile global energy demand.  

Crude oil prices have negative carryover from Tuesday when Libyan central bank governor Sadiq Al-Kibir said there are "strong" indications that political factions are nearing an agreement to overcome political differences and resume the country's crude oil production.  Last week, 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 threatened to remove more than 1 million bpd of crude from the global market.  

Oil prices have some support from concern that an escalation of conflict in the Middle East could disrupt oil supplies.  Israel's military continues to conduct operations in Gaza, and there is the continued risk that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran.  Meanwhile, ongoing attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.

A supportive factor for crude is a decrease in Russian crude exports.  Weekly vessel-tracking data from Bloomberg showed Russian crude exports fell by +-25,000 bpd to 3.1 million bpd in the week to September 1.  Meanwhile, increased Russian crude production is negative for oil prices after Russia's Energy Ministry reported on August 23 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 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 -14% w/w to 52.99 million bbl in the week ended August 30, the lowest in 4-1/2 years.

Thursday's EIA report showed that (1) US crude oil inventories as of August 30 were -4.5% below the seasonal 5-year average, (2) gasoline inventories were -2.2% below the seasonal 5-year average, and (3) distillate inventories were -9.5% below the 5-year seasonal average.  US crude oil production in the week ending August 30 was unchanged w/w at 13.3 million bpd, falling back from the record high of 13.4 million bpd from the week of August 16.

Baker Hughes reported Friday that active US oil rigs in the week ending September 6 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.
 

• Signs of Weakness in Global Energy Demand Weigh on Crude Prices
• Crude and Gasoline Prices Pressured by Stagnant Energy Demand
• Crude Prices Gain as OPEC+ Delays Crude Production Increases
• Crude Prices Slump on Weak Global Fuel Demand Prospects

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