Crude oil prices closed lower on Thursday, with WTI crude falling back from a 13-month high. The decline came as weaker-than-expected U.S. economic news on Q2 GDP and pending home sales raised concerns about energy demand. As a result, there was long liquidation in both crude and gasoline futures.
Despite the drop in prices, the weakness in the dollar provided some support for crude prices. Additionally, Wednesday’s report from the Energy Information Administration (EIA) showed that crude inventories fell to a 9-month low, while crude supplies at Cushing, the delivery point of WTI futures, dropped to a 14-month low. These factors contributed to carryover support for crude prices.
The U.S. economic news on Thursday was largely disappointing, further dampening sentiment for crude prices. Q2 GDP remained unchanged at 2.1%, below expectations of a slight upward revision. In addition, pending home sales for August fell by 7.1% month-on-month, the largest decline in 11 months. However, the labor market showed strength, with weekly initial unemployment claims rising by only 2,000 to 204,000, better than expectations.
Crude prices also received support from Russia’s announcement last Thursday that it would ban gasoline and diesel exports in a bid to stabilize domestic fuel prices. This move is expected to remove about 1 million barrels per day (bpd) of fuel supplies from the market, or approximately 3.4% of total global demand.
The tightness in the oil market is expected to persist due to the extension of OPEC+ production cuts. Saudi Arabia recently confirmed that it would maintain its unilateral crude production cut of 1.0 million bpd through December, keeping its crude output at around 9 million bpd, the lowest level in three years. Russia has also announced that it will maintain its 300,000 bpd cut in crude production through December.
However, there are concerns about an increase in crude stored in tankers, which could put downward pressure on prices. Recent data showed that the amount of crude oil held on stationary tankers rose by 11% week-on-week to 95.93 million barrels as of September 22.
Improved relations between the U.S. and Iran could also have an impact on oil prices. The recent prisoner exchange and unlocking of $6 billion of Iranian funds could lead to the resumption of nuclear talks, potentially resulting in relaxed sanctions and increased Iranian oil exports.
In terms of U.S. data, the EIA report for the week ended September 22 showed that crude oil inventories were below the seasonal five-year average by 3.4%, while gasoline inventories were 2.2% below the average and distillate inventories were 13.2% below the average. U.S. crude oil production remained unchanged from the previous week at 12.9 million bpd, the highest level in 3-1/2 years.
The number of active U.S. oil rigs fell to a 19-1/2 month low of 507 rigs, indicating a decrease in crude oil production capacity. However, active oil rigs have more than tripled from the pandemic low of 172 rigs seen in August 2020.
While crude oil prices experienced a decline on Thursday, there are several factors that continue to support the market. The extension of OPEC+ production cuts, the ban on fuel exports by Russia, and potential changes in U.S.-Iran relations all contribute to the tightness in the oil market. However, concerns about increased crude storage and weaker-than-expected U.S. economic data may exert downward pressure on prices in the short term.