Crude Prices Experience Sharp Decline Amidst Increased Russian Exports

Crude Oil Prices

The WTI crude oil for January (CLF24) witnessed a morning decrease of -2.52 (-3.53%), accompanied by a -0.0621 (-3.04%) drop in January RBOB gasoline (RBF24). Both crude oil and gasoline prices are substantially lower today, with crude hitting a 5-1/2 month low and gasoline reaching a 2-year low. Oversupply concerns have intensified due to indications of heightened Russian crude exports, leading to a significant plunge in crude prices. Despite a weakened dollar, crude prices are on the decline.

The surge in Russian crude exports is viewed as a bearish factor for oil prices. Bloomberg’s tanker-tracking data reveals a rise in refined fuel shipments to 3.2 million bpd in the four weeks ending December 10, marking a 114,000 bpd increase from the previous week, reaching the highest level in five months. The current weakness in the crude crack spread further dampens oil prices, hitting 5-week low, dissuading refiners from acquiring crude oil for the production of gasoline and distillates.

An optimistic note for crude oil comes from the American Automobile Association’s (AAA) projection on Monday, anticipating a record 7.5 million people flying from December 23 to January 2, the highest since the AAA began tracking such data in 2000. Additionally, the U.S. Energy Department’s recent offer to purchase up to 3 million bbl of sour crude for delivery in March to replenish the strategic petroleum reserve contributes positively. This offer follows a previous tender for the same amount slated for February, with the Energy Department planning monthly tenders through at least May 2024.

However, signs of increasing U.S. crude exports hurt prices, as ship-tracking firms Kpler and Vortexa predict a potential record of 5.7 million bpd in U.S. crude exports. Conversely, a bearish factor for crude stems from Saudi Arabia’s decision on last Tuesday to reduce the price of its flagship Arab light crude for January delivery to Asian customers by 50 cents to $3.50 a barrel more than the benchmark, marking the first price cut since June.

Following the OPEC+ agreement on November 30 to cut crude production by -1.0 million bpd through June 2024, crude prices faced a sell-off due to the lack of details on the distribution of cuts among members. The announcement that individual countries will disclose final details, including national production levels, disappointed the market, hinting that the cuts may be voluntary.

Saudi Arabia’s commitment to maintaining a unilateral crude production cut of 1.0 million bpd through Q1-2024, along with Russia’s decision to deepen its voluntary oil export cuts to 500,000 bpd in Q1-2024, further impacts global crude production. OPEC’s November crude production fell by -140,000 bpd to 28.050 million bpd.

The ongoing dispute between Angola and other OPEC+ members adds a bearish factor, as Angola rejects OPEC’s quota, stating it will produce above the allocated quota. Angola, Africa’s second-largest crude producer, plans to pump 1.18 million bpd in January, exceeding the 1.11 million quota set by OPEC.

Oil prices find support amid concerns that attacks on oil tankers in the Middle East could disrupt crude oil supplies. Notably, at least 10 merchant ships have been attacked or approached around Yemen by Iranian-backed Houthi militants in the Red Sea since the conflict between Israel and Hamas erupted in October.

On the downside, an increase in crude held in floating storage, as indicated by Vortexa’s weekly data on December 8, reflects a bearish sentiment, with the amount of crude oil on stationary tankers rising by +11% w/w to 79.87 million bbl.

Market consensus anticipates a -2.0 million bbl decline in Wednesday’s weekly EIA crude inventories. Last week’s EIA report highlighted that U.S. crude oil inventories as of December 1 aligned with the seasonal 5-year average, while gasoline inventories were -0.5% below and distillate inventories were -11.6% below the 5-year seasonal average. U.S. crude oil production for the week ending December 1 slightly decreased by -0.8% m/m to 13.1 million bpd, just below the previous week’s record high.

In the realm of rig activity, Baker Hughes reported a decrease of -2 rigs in active U.S. oil rigs for the week ending December 8, reaching 503 rigs—marginally above the 1-3/4 year low of 494 rigs from November 10. This decline follows a trend this year, with the number of U.S. oil rigs fluctuating after reaching a 3-1/2 year high of 627 rigs in December 2022, rising from the pandemic low of 172 rigs in August 2020.

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