Crude Prices Pressured as More Oil Flows Through the Strait of Hormuz

November WTI crude oil (CLX26) is down -0.98 (-1.06%) today, and November RBOB gasoline (RBX26) is down -0.0137 (-0.43%).

Crude oil and gasoline prices are moving lower today on signs that a steady flow of crude oil is coming out of the Persian Gulf through the Strait of Hormuz, easing supply concerns. Also, today’s rally in the dollar index ($DXY) to a 2-month high is bearish for energy prices.

Signs of larger oil exports from Saudi Arabia are bearish for prices.  Tracking data compiled by Bloomberg show Saudi Arabia's crude exports stood at 5.28 million bpd in September, the highest in seven months.  Saudi Arabia also said it restored about 3.5 million bpd of the East-West Pipeline's 7 million bpd capacity on Monday after repairs restored the link damaged by drone strikes earlier this month. 

The downside for crude prices appears limited in the near-term as hopes faded for an imminent breakthrough to end the war in Iran and reopen the Strait of Hormuz.   Crude prices also have support as Iran-backed Houthi militants in Yemen have ramped up attacks against Saudi Arabia.  The rebels have targeted energy facilities in Saudi Arabia with missiles and drones, forcing several oil facilities to halt some production.  Saudi Arabia said that its crude production in August fell to 6.238 million bpd, the lowest since 1990. 

The US and Iran remain at odds over key issues, including control over the Strait of Hormuz.  US Secretary of State Rubio said last Wednesday that peace talks with Iran are being impeded by Iran's Revolutionary Guard leaders.  Iranian President Pezeshkian said last Wednesday that Iran won’t allow freedom of navigation through the Strait of Hormuz while sanctions and a US blockade remain in place.

The advances by the Houthi rebels to take territory along the Red Sea in Yemen are also contributing to concerns about tighter oil supplies from the Middle East.  Earlier this month, the Houthis captured a pair of islands near the Bab-al-Mandeb Strait.  That followed their seizure of Perim Island and the Red Sea port city of Mokha at the southern end of the Red Sea, putting the group in a stronger position to attack ships.  Since the closure of the Strait of Hormuz, Saudi Arabia has pivoted to the Red Sea to export most of its oil over the past two months.  However, escalating tensions with the Houthis have disrupted that route.

Vitol Group said that global oil markets are continuing to tighten, with the loss of about 2 million bpd from crude exports in the Middle East, and a further 2 million bpd from Russia as a result of Ukraine’s drone attacks.  Data compiled by Bloomberg, Kpler and Vortexa showed that Saudi Arabia's Aug crude exports dropped to about 3 million bpd, the lowest amount in 9 years.

Ukraine has intensified drone attacks on Russian oil infrastructure, curbing Russian crude production and exports.  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.  The attacks on Russian oil infrastructure knocked Russia’s crude production in July to 8.89 million bpd, the lowest in six years, according to secondary source estimates published by OPEC.  Meanwhile, Reuters reported on August 28 that Russia’s gasoline production fell to about 80,000 tons a day in August, only 70% of domestic demand, causing shortages across the country.

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.

As a bearish factor for crude, OPEC delegates on August 2 approved their final increase of +188,000 bpd in crude production for September.  The group has now 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, the planned OPEC+ production increases may be difficult to achieve amid persistent US-Iran military attacks in the region.  OPEC's Aug crude production fell by -900,000 bpd to 19.91 million bpd. 

Vortexa reported on Monday that crude oil stored on tankers that have been stationary for at least 7 days rose +4.4% w/w to 92.49 million bbl in the week ended September 25.

Last Wednesday's EIA report showed that (1) US crude oil inventories as of September 18 were +2.1% above the seasonal 5-year average, (2) gasoline inventories were -5.6% below the seasonal 5-year average, and (3) distillate inventories were -11.9% below the 5-year seasonal average.  US crude oil production in the week ending September 18 fell slightly to 13.939 million bpd, just below the record of 13.947 million bpd from the week of September 4.

Baker Hughes reported last Friday that the number of active US oil rigs in the week ended September 26 rose by +3 and matched the 16-month high of 455 rigs from the week of August 14.

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.