Crude Prices Mildly Lower on Global Energy Demand Concerns

April WTI crude oil (CLJ24) on Thursday closed down -0.20 (-0.25%), and Apr RBOB gasoline (RBJ24) closed up +0.09 (_0.04%).

Crude oil and gasoline prices on Thursday settled mixed. Crude prices fell Thursday after weaker-than-expected global economic news sparked energy demand concerns. However, crude oil and gasoline prices saw underlying support from the drop in the dollar index to a 1-week low. Also, Thursday's rally in the S&P 500 to a record high boosted confidence in the economic outlook and was positive for energy demand.

Thursday's global economic news was weaker than expected, a bearish factor for energy demand and crude prices. The U.S. Jan trade deficit increased to -$67.4 billion, wider than expectations of -$63.3 billion and the largest deficit in 9 months, a negative factor for Q1 GDP. Also, German Jan factory orders fell -11.3% m/m, weaker than expectations of -6.0% m/m and the biggest decline in 3-3/4 years. The ECB on Thursday cut its Eurozone 2024 GDP forecast to 0.6% from a December forecast of 0.8%.

A decline in Russian crude oil exports is supportive of crude oil prices. Tanker-tracking data from Vortexa, monitored by Bloomberg, shows Russian crude exports in the week to March 3 fell about -230,000 bpd from the prior week to 2.78 million bpd, the lowest in five weeks.

Crude has carryover support from Tuesday when China set its annual growth target at around 5%, which bolstered speculation the Chinese government will have to boost stimulus measures to attain that goal.

Crude has support after OPEC+ announced on Sunday that it will extend its current crude production cuts of about 2 million bpd until the end of June. The group said its crude production cuts will be "returned gradually subject to market conditions" after the second quarter. OPEC Feb crude production rose +110,000 bpd to 26.680 million bpd, a bearish factor for oil prices as Iraq and UAE continue to pump above their production quotas.

A recovery in Russian crude refining from Ukranian drone attacks is negative for prices. Bloomberg calculations show Russia processed 5.44 million bpd of crude during the Feb 15-28 period, more than +4% above levels in the first half of February. Several Russian oil processing and storage facilities have been targeted and damaged by Ukrainian drone attacks but have been repaired and are running near capacity.

A report from Vortexa on Monday weighed on crude prices as it said OPEC+ compliance with crude production cuts is still "questionable." The report said that Russian oil exports were about 500,000 bpd above the OPEC+ commitments, and there are "little indications that Russia is actively cutting either crude production or exports."

Crude prices are supported by concern that the Israel-Hamas war might widen to Lebanon. Hezbollah and Israel have traded fire almost daily since the Israel-Hamas war erupted on Oct 7. Also, the U.S. and UK have engaged in airstrikes against Houthi rebels in Yemen in retaliation for Houthi attacks on commercial shipping in the Red Sea. 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.

Strong oil-product consumption in India, the world's third largest crude consumer, is bullish for oil prices after India's Jan oil-product consumption rose +8.3% y/y to 20 MMT, the most in 9 months.

A decline in crude in floating storage is bullish 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 fell -2.4% w/w to 68.60 million bbl as of Mar 1.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of March 1 were -1.3% below the seasonal 5-year average, (2) gasoline inventories were -2.5% below the seasonal 5-year average, and (3) distillate inventories were -9.9% below the 5-year seasonal average. U.S. crude oil production in the week ending Mar 1 fell -0.8% w/w to 13.2 million bpd, falling back from the prior week's record high of 13.3 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Mar 1 rose by +3 rigs to a 5-month high of 506 rigs, modestly above the 2-year low of 494 rigs posted on Nov 10. The number of U.S. oil rigs has fallen over the past year from the 3-3/4 year high of 627 rigs posted in December 2022.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.