October WTI crude oil this morning is up +2.18 (+2.55%), and Oct RBOB gasoline is up +5.96 (+2.33%).

 

Crude oil prices this morning are rallying, with crude climbing to a 9-1/2 month high and gasoline posting a 1-week high.  The main bullish factor today was the action by Saudi Arabia and Russia to announce they will extend their crude production cuts until the end of the year.   A bearish factor for energy prices is today’s rally in the dollar index to a 5-1/2 month high.

Crude prices rallied today after Saudi Arabia said it would maintain its unilateral crude production cut of 1.0 million bpd through December.  The move will hold Saudi Arabia’s crude output at about 9 million bpd, the lowest level in three years.  Crude prices extended their gains today after Russia announced it would also maintain its 300,000 bpd cut in crude production through December.

Global economic news today shows a weakness in growth that is bearish for energy demand and crude prices.  U.S. July factory orders fell -2.1% m/m, the biggest decline in 8 months.   Also, the China Aug Caixin services PMI fell -2.3 to an 8-month low of  51.8, weaker than expectations of 53.5.  In addition, the Eurozone Aug S&P composite PMI was revised downward by -0.3 to 46.7 from the previously reported 47.0, the steepest pace of contraction in 2-3/4 years.

An increase in Iranian crude exports is boosting global supplies and is bearish for oil prices.  According to TankerTrackers.com, Iranian crude exports rose to a 5-year high of 2.2 million bpd during the first 20 days of August, with most of the crude going to China.

A negative factor for crude prices is the progress made in Iran-U.S. relations that could lead to higher crude exports from Iran after Iran said the recent deal with the U.S. on the release of prisoners and frozen Iranian funds could lead to diplomacy in other areas, including its nuclear program.  An agreement on Iran’s nuclear program could eventually prompt the U.S. and its allies to remove sanctions on Iranian crude exports, boosting global crude supplies.

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Loren R Bailey, President

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