Crude Prices Climb on U.S. Economic Strength Amid Tighter Global Supplies

March WTI crude oil (CLH24) this morning is up +1.41 (+1.88%), and Mar RBOB gasoline (RBH24) is up +2.03 (+0.91%).

Crude oil and gasoline prices this morning rallied to 1-3/4 month highs and are moderately higher.  Signs of strength in U.S. energy demand support crude prices after today's report showed that U.S. Q4 GDP grew more than expected.  Also, a drone attack damaged a Russian refinery on Russia's Black Sea coast, which risks reducing Russian crude exports and global oil supplies.  In addition, crude has carryover support from Wednesday's weekly EIA report that showed U.S. crude inventories fell more than -9.0 million bbl.  

Today's U.S. economic news mainly was better-than-expected, a positive factor for energy demand and crude prices.  U.S. Q4 GDP grew at a +3.3% (y/y annualized) pace, stronger than expectations of +2.0%.  Also, Dec capital goods new orders ex-aircraft and parts, a proxy for capital spending, rose +0.3% m/m, stronger than expectations of +0.1% m/m.  In addition, Dec new home sales rose +8.0% m/m to 664,000, stronger than expectations of 649,000.  On the negative side, weekly initial unemployment claims rose +25,000 to 214,000, showing a weaker labor market than expectations of 200,000.

Crude prices found support today after a Ukranian drone attack damaged Russia's Rosneft PJSC's major Tuapse refinery on Russia's Black Sea coast.  In recent weeks, several Russian oil processing and storage facilities have been targeted and damaged by Ukrainian drone attacks, increasing the risks of reducing Russian crude exports.

Concerns about escalating geopolitical tensions in the Middle East support crude prices.  The U.S. and the UK continue to launch airstrikes against Houthi rebels in Yemen in retaliation for Houthi attacks on commercial shipping in the Red Sea.  Earlier this month, the U.S. Navy advised vessels to avoid the southern Red Sea.  Houthis started attacking ships in the Red Sea in mid-November in support of Hamas in the Israeli-Hamas war and said they won't stop the attacks until Israel ends its assault on Gaza.  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 decline in Russian crude oil exports is supportive of crude oil prices.  Tanker-tracking data from Vortexa monitored by Bloomberg shows the four-week average of refined fuel shipments from Russia fell to 2.62 million bpd in the four weeks to Jan 21, down -70,000 bpd from the prior week.

A bearish factor for crude oil was the announcement from Libya's National Oil Corp that crude flows from the Sharara oil field, which has been closed for the past three weeks, would resume.  The Sharara oil field is Libya's largest and pumps about 300,000 bpd.

An increase in crude in floating storage is bearish for prices.  Monday's weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week rose +3.2% w/w to 75.28 million bbl as of Jan 19.

On Nov 30, OPEC+ agreed to cut crude production by -1.0 million bpd through June 2024.  However, crude prices sold off on the news since no details were provided on how the cuts would be distributed among members, nor how Russia's -300,000 bpd export cut would factor into the new totals.  Delegates said the final details of the new accord, including national production levels, would be announced individually by each country rather than in the customary OPEC+ communique.  The market was disappointed that the extra cuts in OPEC crude output will be announced by each individual country, which suggests the reductions are only voluntary.  Meanwhile, on Dec 21, Angola announced that it was leaving OPEC amid a dispute over oil production quotas.

Saudi Arabia said on Nov 30 that it would maintain its unilateral crude production cut of 1.0 million bpd through Q1-2024.  The move would maintain Saudi Arabia's crude output at about 9 million bpd, the lowest level in three years.  Russia also said it will deepen its voluntary oil export cuts by 200,000 bpd to 500,000 bpd in Q1 of 2024.  OPEC Dec crude production fell -40,000 bpd to 28.050 million bpd.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Jan 19 were -5.4% below the seasonal 5-year average, (2) gasoline inventories were +1.6 above the seasonal 5-year average, and (3) distillate inventories were -3.7% below the 5-year seasonal average.  U.S. crude oil production in the week ended Jan 19 fell -7.5% w/w to 12.3 million bpd, falling back from the previous week's record high of 13.3 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Jan 19 fell by -2 rigs to 497 rigs, just above the 2-year low of 494 rigs from Nov 10.  The number of U.S. oil rigs in the past year has fallen from the 3-3/4 year high of 627 rigs posted in December 2022.

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