Market Close: Dec 12 Down, Diesel DN $.1013, Gas DN $.0634

January WTI crude oil on Tuesday closed down -2.71 (+3.80%), and Jan RBOB gasoline closed -6.34 (-3.10%). Crude oil and gasoline prices fell sharply on Tuesday, with crude dropping to a 5-1/2 month low and gasoline sinking to a 2-year low.  Signs of stronger Russian crude exports have exacerbated oversupply concerns and sent crude prices plunging.   Crude prices fell on Tuesday despite a weaker dollar.

An increase in Russian crude exports is bearish for oil prices.  Tanker-tracking data monitored by Bloomberg shows refined fuel shipments climbed to 3.2 million bpd in the four weeks to Dec 10, up +114,000 bpd from the prior week and the highest five months. Weakness in the crude crack spread is bearish for oil prices.  The crack spread Tuesday fell to a 5-week low, discouraging refiners from purchasing crude oil to refine into gasoline and distillates.

A supportive factor for crude was Monday’s projection from the American Automobile Association (AAA) that a record 7.5 million people are expected to fly from Dec 23 to Jan 2, the most since the AAA began tracking the data in 2000.   A positive factor for crude was the U.S. Energy Department’s offer last Friday to buy as much as 3 million bbl of sour crude for delivery in March to refill the strategic petroleum reserve.  That comes on top of a previous tender to buy the same amount for February.  The Energy Department said it will hold monthly tenders to buy oil to refill the reserve through at least May 2024. Signs of increasing U.S. crude exports are negative for prices as ship-tracking firms Kpler and Vortexa project that U.S. crude exports will soon reach a record 5.7 million bpd.

On Nov 30, OPEC+ agreed to cut crude production by -1.0 million bpd through June 2024.  However, crude prices sold off on the news since no details were provided on how the cuts would be distributed among members nor how Russia’s -300,000 bpd export cut would factor into the new totals.  Delegates said the final details of the new accord, including national production levels, would be announced individually by each country rather than in the customary OPEC+ communique.  The market was disappointed that the extra cuts in OPEC crude output will be announced by each individual country, which suggests the reductions may only be voluntary. Saudi Arabia said on Nov 30 that it would maintain its unilateral crude production cut of 1.0 million bpd through Q1-2024.  The move would maintain Saudi Arabia’s crude output at about 9 million bpd, the lowest level in three years.  Russia also said it will deepen its voluntary oil export cuts by 200,000 bpd to 500,000 bpd in Q1 of 2024.  OPEC Nov crude production fell -140,000 bpd to 28.050 million bpd. The rift between Angola and other OPEC+ members remains and is a bearish factor that signals more infighting among members.  Angola OPEC governor Pedro said on Nov 30 that his country rejects OPEC’s quota and “Angola will produce above the quota determined by OPEC.”  Angola is Africa’s second-largest crude producer, and OPEC governor Pedro said his country will pump 1.18 million bpd in January, above the 1.11 million quota set out by OPEC.

Oil prices are supported by concern that attacks on oil tankers in the Middle East may disrupt crude oil supplies.  At least 10 merchant ships have been attacked or approached around Yemen by Iranian-backed Houthi militants in the Red Sea since Israel’s war with Hamas broke out in October.  An increase in crude in floating storage is bearish for prices.  Monday’s weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week rose +11% w/w to 79.87 million bbl as of Dec 8.

The consensus is that Wednesday’s weekly EIA crude inventories will fall by -2.0 million bbl. Last Wednesday’s EIA report showed that (1) U.S. crude oil inventories as of Dec 1 were right on the seasonal 5-year average, (2) gasoline inventories were -0.5% below the seasonal 5-year average, and (3) distillate inventories were -11.6% below the 5-year seasonal average.  U.S. crude oil production in the week ending Dec 1 fell -0.8% m/m to 13.1 million bpd, just below the previous week’s record high of 13.2 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Dec 8 fell by -2 rigs to 503 rigs, modestly above the 1-3/4 year low of 494 rigs from Nov 10.  The number of U.S. oil rigs has fallen this year after moving sharply higher during 2021-22 from the 18-year pandemic low of 172 rigs posted in Aug 2020 to a 3-1/2 year high of 627 rigs in December 2022.

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