Crude Rallies on OPEC+ Production Cuts and Tighter EIA Inventories

Nov WTI crude oil (CLX22) on Wednesday closed up +1.24 (+1.43%), and Nov RBOB gasoline (RBX22) closed down -1.45 (-0.54%).  

Crude oil and gasoline prices Wednesday settled mixed, with crude climbing to a 2-1/2 week high.  Crude prices moved higher Wednesday after OPEC+ cut its crude production target by a larger than expected -2.0 million bpd.  Gains in crude prices accelerated Wednesday on a bullish weekly EIA inventory report.  

Gasoline prices Wednesday gave up an early advance and closed lower after Bloomberg reported that White House officials had asked the U.S. Enegy Department to analyze the possible impacts of a ban on U.S. exports of gasoline, diesel, and other refined petroleum products.  

Crude oil prices rallied Wednesday after OPEC+ agreed to cut its collective output by -2.0 million bpd for November and December, a bigger cut than expectations of -1.0 million bpd.   The reaction to the cut in OPEC+ crude production was initially tempered as a cut in output would not necessarily lead to a commensurate drop in actual barrels since many OPEC+ producers cannot meet their production quotas in full, given supply constraints.  Citigroup estimates that a cut by OPEC+ production of 1 million bpd would only reduce real-world production by 500,000-600,000 bpd.  

Comments from Nigeria's oil minister Wednesday were bullish for crude prices when he said OPEC wants crude prices around $90 per barrel and "we have to take every step to ensure prices remain" within this range.

Strength in the crude crack spread is bullish for oil prices.  The crack spread Wednesday rose to a 6-week high, encouraging refiners to purchase crude to refine into gasoline and distillates.

In a bullish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week fell -17% w/w to 91.19 million bbls in the week ended September 30.

OPEC crude production in September rose +230,000 bpd to a 2-1/2 year high of 29.89 million bpd.  An increase in crude exports from Libya is bearish for oil prices after Libya Sep crude exports jumped +25% m/m to 1.16 million bpd, a 14-month high.

Crude oil prices have support as China eases some of its pandemic restrictions.  China's Covid lockdowns have hurt Chinese energy demand in recent months.  Chinese refineries in July handled the least amount of oil since March 2020 as Covid lockdowns and refinery shutdowns for maintenance undercut crude demand.  Also, current crude demand remains weak as China's Bureau of Statistics reported China Aug crude processing rose just +0.9% from July and was still down -8% y/y to 12.69 million bpd.

Oil prices are seeing support from the dim prospects for a nuclear deal with Iran that would lift sanctions against Iran and allow its crude back onto the global markets.  The International Atomic Energy Agency (IAEA) recently said that "the information gap is bigger and bigger" on Iran's recent nuclear activities.  Also, the European Union's chief negotiator recently said that "in light of Iran's failure to conclude the agreement on the table, we will consult with our international partners on how best to deal with Iran's continued nuclear escalation."

Wednesday's weekly EIA inventory report was bullish for energy prices.  EIA crude inventories unexpectedly fell -1.36 million bbl versus expectations of a +1.8 million bbl increase.  Also, EIA gasoline supplies dropped -4.7 million bbl to a nearly 8-year low, a bigger draw than expectations of -1.1 million bbl due to a surge in gasoline demand.  The EIA reported U.S. gasoline demand in the week ended Sep 30 rose +7.3% w/w to 9.465 million bpd, an 8-month high.  In addition, EIA distillate stockpiles fell -3.4 million bbl, a larger draw than expectations of -1.5 million bbl.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of September 30 were -2.6% below the seasonal 5-year average, (2) gasoline inventories were -8.5% below the seasonal 5-year average, and (3) distillate inventories were -21.4% below the 5-year seasonal average.  U.S. crude oil production in the week ended September 30 was unchanged at 12.0 million bpd, which is only -1.1 million bpd (-8.4%) below the Feb-2020 record-high of 13.1 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended September 30 rose by +2 rigs to 604 rigs, just below the 2-1/4 year high of 605 rigs posted in the week ended July 29.  U.S. active oil rigs have more than tripled from the 17-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity.

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