Crude Prices Weaken on Dollar Strength and Global Surplus Prospects

December WTI crude oil (CLZ26) closed down -0.18 (-0.20%) on Friday, and December RBOB gasoline (RBZ26) closed down -0.0494 (-1.85%).

Crude oil and gasoline prices settle lower on Friday.  Dollar strength weighed on energy prices Friday after the dollar index ($DXY) climbed to a 1.5-year high.  Crude prices also came under pressure after the IEA projected a global crude surplus this quarter.  Crude losses were limited after President Trump said the US doesn’t need a deal with Iran, dimming prospects for a quick breakthrough to end the war that has disrupted energy supplies from the Middle East.

Crude prices slipped on Friday after the International Energy Agency (IEA) cut its 2026 global crude oil demand forecast to 102.29 million bpd, down -90,000 bpd from last month's forecast.  The IEA also said global oil markets will swing to a surplus for the first time since the start of the Iran war, boosting 2026 global oil supply estimates by 920,000 bpd, and said global oil markets will be in surplus by 2 million bpd this quarter.

Crude oil losses were limited on Friday on concerns over escalation of the US-Iran conflict after US Central Command said it shot down two attack drones launched by Iran’s IRGC toward a US base in Bahrain.  Supply threats to crude oil remain due to flare-ups in the Middle East, with continued attacks on commercial shipping and disruption to the region's energy infrastructure.  According to consultant Verisk Maplecroft, there were 36 confirmed attacks on commercial ships in the Persian Gulf, the Strait of Hormuz, and the Gulf of Oman in October, the highest total since the Iran war began.

Despite the ongoing US-Iran conflict, oil supplies are still leaving the Middle East.  Combined exports from Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait climbed 10% to 15.53 million bpd in October, roughly in line with levels shipped at the start of the year, according to tanker-tracking data compiled by Bloomberg.

Higher Saudi crude output is bearish for crude prices.  Saudi Arabia said its Oct crude production rose by +970,000 bpd to 9.2 million bpd (+12% m/m), recovering further 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.

On the positive side for crude, Saudi Arabian state producer Aramco last Thursday cut its crude prices for Asian buyers next month by less than expected.  Aramco cut its crude price for Asian buyers for December delivery by $2 a barrel, less than market expectations of a $5 decrease from November.

Recent attacks by Ukraine on Russian oil infrastructure have curbed Russian crude production and exports. Ukraine has attacked nine Russian oil refineries since the start of November, including the Omsk facility, Russia’s largest.  According to Rystad Energy AS, Russian refinery runs in the first ten days of November stood at 4.2 million bpd, down from 5 million bpd in late October.  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.

On November 1, 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 Oct crude production rose by +930,000 bpd to an 8-month high of 22.8 million bpd. 

Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell -7.7% w/w to 88.32 million bbl in the week ended November 6, the lowest level in more than 3 months.

Thursday’s EIA report showed that (1) US crude oil inventories as of November 6 were -4.4% below the seasonal 5-year average, (2) gasoline inventories were +0.5% above 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 November 6 rose +0.1% w/w to a new record high of 14.013 bpd.

Baker Hughes reported Friday that the number of active US oil rigs in the week ended November 13 was unchanged at a 1.5-year high of 463 rigs.

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.