Crude Oil Prices Sink on Hopes Diplomacy Can End US-Iran Conflict

December WTI crude oil (CLZ26) is down -7.23 (-6.95%) today, and December RBOB gasoline (RBZ26) is down -0.2337 (-7.40%).

Energy prices are sharply lower today, with Dec WTI crude oil falling to a 2-week low and Dec gasoline dropping to a 3-month nearest-futures low.  Crude prices are slumping today on hopes that diplomacy can end the US-Iran war that has disrupted Middle Eastern fuel supplies.

Crude oil prices are tumbling more than -6% today after a report from Axios said that President Trump told Israeli Prime Minister Netanyahu that he wants to give diplomacy with Iran more time before resuming strikes on the country.  Crude losses accelerated today after Iran's state-run IRNA reported that Iran's Supreme Leader Khamenei granted the Iranian government authority to engage in talks regarding the conflict with the US. 

Also, signs that crude supplies are still leaving the Middle East are weighing on prices after Tankertrackers.com reported that Saudi Arabia has shipped a total of 6.99 million bpd of crude in October from its east and west coasts.

Higher Saudi crude output is bearish for crude prices.  Saudi Arabia said its Sep crude production rose by 2 million bpd (+40% m/m) to 8.732 million bpd, recovering from a 36-year low in August.  However, Saudi oil production continues to be threatened by Houthi missile attacks on Saudi Arabia and by the Houthi threats to oil shipments near the Bab-al-Mandeb Strait.

Recent attacks by Ukraine on Russian oil infrastructure have curbed Russian crude production and exports. Ukraine attacked Russian fuel-producing plants 15 times in September and 22 times in August, targeting five of Russia’s ten largest oil-processing plants.  According to EA Analytics, Russian crude-processing rates averaged 3.51 million bpd in July, the lowest in 24 years, amid damage to Russian energy infrastructure caused by drone and missile attacks from Ukraine.  Russian crude processing rates recovered slightly to 3.98 million bpd in September as damaged refineries struggle to come back online.

On the bearish side for crude, the International Energy Agency (IEA) on September 11 warned that high oil prices and restricted oil supply will cause the biggest drop in global oil demand this year since the Covid-19 pandemic.  Despite the projected demand drop, the IEA raised its estimate for this year’s global oil deficit to 1.7 million bpd from last month’s 1.3 million bpd estimate due to the restricted supply caused by the US-Iran war. The IEA said the return of a global oil surplus will be delayed until 2027, later than its previous estimate of late 2026.

On Sunday, OPEC+ agreed to keep oil production quotas unchanged for December.  As a bearish factor for crude, OPEC delegates on August 2 approved their final increase of +188,000 bpd in crude production for September. On paper, the group has restored all 1.65 million bpd of the supply cutback it made in 2023 and said it plans to hold output steady for the rest of the year after the September hike.  However, OPEC+ may struggle to deliver planned production increases amid Middle East shipping disruptions.  OPEC's Sep crude production rose by +1.12 million bpd to 20.71 million bpd. 

Vortexa reported today that crude oil stored on tankers that have been stationary for at least 7 days fell -11% w/w to 78.36 million bbl in the week ended October 30, the lowest level in more than 3 months.

Last Wednesday’s EIA report showed that (1) US crude oil inventories as of October 23 were -3.7% below the seasonal 5-year average, (2) gasoline inventories were -2.0% below the seasonal 5-year average, and (3) distillate inventories were -9.5% below the 5-year seasonal average.  In a bearish factor, US crude oil production in the week ending October 23 rose +5.4% w/w to a new record high of 13.992 bpd as production more than recovered after a temporary decline due to Hurricane Isaias.

Baker Hughes reported last Friday that the number of active US oil rigs in the week ended October 30 rose by +2 rigs to 462, matching the 1.5-year high of 462 rigs posted on October 9.

On the date of publication, Rich Asplund did not directly have a position 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.