Crude Finishes Sharply Lower on Gaza Cease-Fire Prospects and Robust EIA Inventories

Rich Asplund - Barchart - Wed May 1, 2:18PM CDT

June WTI crude oil (CLM24) on Wednesday closed down -2.93 (-3.58%), and June RBOB gasoline (RBM24) closed down -11.38 (-4.23%).

Crude and gasoline prices Wednesday tumbled to 1-1/2 month lows and closed sharply lower. Crude prices are under pressure due to the potential for a cease-fire between Israel and Hama, which eases concerns about the escalation of the conflict and possible disruptions to Middle East crude supplies. Losses in crude accelerated Wednesday after weekly EIA crude inventories unexpectedly rose to a 10-month high.

Wednesday's US economic news was mixed for energy demand and crude prices. On the negative side, Mar JOLTS job openings fell -325,000 to a 3-year low of 8.488 million, showing a weaker labor market than expectations of 8.680 million. Also, the Apr ISM manufacturing index fell -1.1 to 49.2, weaker than expectations of 50.0. In addition, Mar construction spending unexpectedly fell -0.2% m/m, weaker than expectations of a +0.3 % m/m increase. On the positive side, the Apr ADP employment change rose +192,000, stronger than expectations of +183,000.

A decrease in crude in floating storage is bullish 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 fell -17% w/w to 62.83 million bbl as of April 26.

Reduced crude demand in India, the world's third-largest crude consumer, is negative for oil prices after India's March oil demand fell -0.6% y/y to 21.09 MMT.

Crude prices have underlying support from the Israel-Hamas war and concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran. Also, attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.

Crude has support from the recent Ukrainian drone attacks on Russian refineries that damaged several Russian oil processing facilities, limiting Russia's fuel exporting capacity. Russia's fuel exports in the week to April 21 fell by -500,000 bpd from the prior week to 3.45 million bpd. JPMorgan Chase said it sees 900,000 bpd of Russian refinery capacity that could be offline "for several weeks if not months" from the attacks, adding $4 a barrel of risk premium to oil prices.

Crude prices have support from April 3 when OPEC+, at its monthly meeting, did not recommend any changes to their existing crude output cuts, which kept about 2 million bpd of production cuts in place until the end of June. However, OPEC crude production in March rose +10,000 bpd to 26.860 million bpd, a bearish factor for oil prices as Iraq and UAE continue to pump above their production quotas.

Wednesday's weekly EIA inventory report was mainly bearish for crude prices. EIA inventories unexpectedly rose +7.27 million bbl to a 10-month high versus expectations of a -2.5 million bbl decline. Also, EIA gasoline supplies unexpectedly rose +344,000 bbl versus expectations of a -1.0 million bbl draw. In addition, crude stockpiles at Cushing, the delivery point of WTI futures, rose +1.09 million bbl. On the positive side, EIA distillate inventories unexpectedly fell -732,000 bbl versus expectations of a +1.0 million bbl build.

Wednesday's EIA report showed that (1) US crude oil inventories as of April 26 were -2.6% below the seasonal 5-year average, (2) gasoline inventories were -3.2% below the seasonal 5-year average, and (3) distillate inventories were -6.9% below the 5-year seasonal average. US crude oil production in the week ending April 26 was unchanged w/w at 13.1 million bpd, below the recent record high of 13.3 million bpd.

Baker Hughes reported last Friday that active US oil rigs in the week ended April 26 fell by -5 rigs to 506 rigs, moderately above the 2-year low of 494 rigs posted on November 10. The number of US oil rigs has fallen over the past year from the 4-year high of 627 rigs posted in December 2022.

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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.