December WTI crude oil (CLZ25) on Wednesday closed up +0.33 (+0.55%), and December RBOB gasoline (RBZ25) closed up +0.0273 (+1.47%).
Crude oil prices settled higher on Wednesday amid an outlook for tighter global oil supplies. Crude prices rose on expectations that President Trump will follow through and enforce new oil sanctions on Russia to pressure Russian President Putin into negotiations to end the war in Ukraine. Crude price added to their gains today after weekly EIA crude inventories unexpectedly fell and gasoline supplies dropped to an 11-month low. However, crude fell back from its best level on Wednesday after the dollar strengthened.
Crude oil rallied on Wednesday after the US representative to NATO said, "We have implemented sanctions on Russian energy and we plan to enforce them." The Trump administration last Wednesday announced sanctions on Rosneft PJSC and Lukoil PJSC, Russia's biggest oil producers, due to "Russia's lack of serious commitment to a peace process to end the war in Ukraine." Meanwhile, the EU adopted a transaction ban on Rosneft and Gazprom Nef and sanctioned 117 additional shadow-fleet vessels and 45 entities that have helped Russia evade sanctions, including 12 companies in China and Hong Kong.
Crude oil prices also have carryover support from Monday on news of a preliminary US-China trade agreement, which is expected to be ratified by President Trump and Xi at a summit on Thursday.
Reduced crude exports from Russia are supportive of oil prices. Ukraine has targeted at least 28 Russian refineries over the past two months, exacerbating a fuel crunch in Russia and limiting Russia's crude export capabilities. Ukrainian drone and missile attacks on Russian refineries and oil export terminals curbed Russia's total seaborne fuel shipments to 1.88 million bpd in the first ten days of October, the lowest average in over 3.25 years.
Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose by +12% w/w to 89.75 million bbls in the week ended October 24. Notably, the IEA forecasted a record global oil surplus of 4.0 million bpd for 2026 on October 14.
Also, Bloomberg reported on Monday that OPEC+ will, at its meeting this weekend, focus on a base case of a third monthly oil production hike of 137,000 bpd for December. That would be in line with the market consensus. OPEC+ is in the midst of boosting output by a further 1.66 million bpd to fully reverse the 2.2 million bpd production cut seen in early 2024. OPEC's September crude production rose by +400,000 bpd to 29.05 million bpd, the highest in 2.5 years.
Wednesday's weekly EIA report was mainly bullish for crude oil and products. EIA crude inventories unexpectedly fell -6.86 million bbl versus expectations of a +1.2 million bbl build. Also, EIA gasoline supplies fell -5.9 million bbl to an 11-month low, a larger draw than expectations of -1.9 million bbl. In addition, EIA distillate stockpiles fell by -3.36 million bbl, a larger draw than expectations of -1.9 million bbl. On the negative side, US crude production in the week ended October 24 rose to an all-time high of 13,644 million bpd, and crude supplies at Cushing, the delivery point of WTI futures, rose by +1.33 million bl.
Wednesday's EIA report showed that (1) US crude oil inventories as of October 24 were -5.8% below the seasonal 5-year average, (2) gasoline inventories were -2.7% below the seasonal 5-year average, and (3) distillate inventories were -8.4% below the 5-year seasonal average. US crude oil production in the week ending October 24 rose +0.1% w/w to a record high of 13.655 million bpd.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ending October 24 rose by +2 rigs to 420 rigs, modestly above the 4-year low of 410 rigs from August 1. Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported 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.
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