Crude Prices Rally on Fears of Escalation of Middle East Hostilities

Nov WTI crude oil (CLX24) Friday closed up +0.67 (+0.91%), and Nov RBOB gasoline (RBX24) closed up +0.32 (+0.15%).

Crude oil and gasoline prices Friday added to Thursday's sharp rally and posted 5-week highs.   Crude prices have rallied sharply in the past two sessions on concern Israel will target Iran's oil facilities in retaliation for Iran’s missile attack on Israel.  Crude prices also garnered support from Friday's stronger-than-expected US Sep payroll report, which signals economic strength and is bullish for fuel demand and oil prices.  Crude fell back from its best levels Friday after the dollar index (DXY00) rallied to a 7-week high and after President Biden sought to discourage Israel from attacking Iran's oil fields.  

Crude prices are underpinned by concerns that Israel may decide to retaliate against Iran for its missile attack on Israel by bombing Iran's oil facilities.  Citigroup estimates that a major strike on Iran's oil export capacity could take 1.5 million bpd of crude off the global market.  However, President Biden on Friday attempted to discourage Israel from attacking Iran's oil facilities when he said, "If I were in their shoes, I would think of other alternatives than attacking oil fields."  

Friday's global economic news is better than expected and bullish for energy demand and crude prices.  US Sep nonfarm payrolls rose +254,000, showing a stronger labor market than expectations of +150,000 and the largest increase in 6 months.  Also, the US Sep unemployment rate unexpectedly fell -0.1 to 4.1%, showing a stronger labor market than expectations of no change at 4.2%.  In addition, French Aug industrial production rose +1.4% m/m, stronger than expectations of +0.3% m/m and the largest increase in 15 months.

A bearish factor for crude oil is the expectation for Libyan oil fields to restore crude output this week.  Earlier this month, 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.

Crude prices were undercut by last Thursday's report from the Financial Times that said Saudi Arabia is ready to abandon its unofficial oil price target of $100 a barrel to regain its market share and is committed to returning its crude production as planned on December 1.  

An increase 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 rose by +1% w/w to 60.76 million bbl in the week ended September 27.

Crude prices found support after OPEC+ on September 5 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.  

An increase in Russian crude exports is bearish for crude.  Weekly vessel-tracking data from Bloomberg showed Russian crude exports rose by +850,000 bpd to 3.74 million bpd in the week to September 29, a 3-month high.  However,  Russia's Energy Ministry reported Wednesday that Russia's Sep crude production was 8.97 million bpd, down -13,000 bpd from Aug and just below the 8.98 million bpd output target it agreed to with OPEC+.

Wednesday's EIA report showed that (1) US crude oil inventories as of September 27 were -4.2% below the seasonal 5-year average, (2) gasoline inventories were -0.8% below the seasonal 5-year average, and (3) distillate inventories were -8.3% below the 5-year seasonal average.  US crude oil production in the week ending September 27 rose +0.8% w/w to 13.3 million bpd, just below 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 October 4 fell by -5 rigs to  479 rigs, just 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 Underpinned by War Risks in the Middle East
• Crude Sharply Higher on a Possible Israeli Attack on Iranian Oil Facilities
• Crude Spikes to a 1-Month High on Possible Israeli Retaliation on Iranian Oil Facilities
• Crude Prices Supported by Middle East Hostilities

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