Crude Oil Falls Back After Thursday’s Rally on US and EU Sanctions on Russian Energy

December WTI crude oil (CLZ25) on Friday closed down -0.29 (-0.47%), and December RBOB gasoline (RBZ25) closed down -0.0043 (-0.23%).

Crude oil and gasoline prices on Friday ran into some pre-weekend long liquidation pressure after the sharp gains seen on Wednesday and Thursday.  Crude oil prices rallied after the US and EU ramped up sanctions on Russian energy and energy infrastructure, raising the prospect of major disruptions to Russian crude production and exports and potentially removing oil supplies from the global market.

The Trump administration late Wednesday announced sanctions on Rosneft PJSC and Lukoil PJSC, Russia’s biggest oil producers, due to “Russia’s lack of serious commitment to a peace process to end the war in Ukraine.”  The new sanctions could bar foreign countries or companies from conducting business with the oil companies and cut them off from much of the international financial system.

Also, the EU adopted a new package of sanctions targeting Russia’s energy infrastructure and sanctioned 117 additional shadow-fleet vessels and 45 entities that have helped Russia evade sanctions, including 12 companies in China and Hong Kong.  The EU also adopted a transaction ban on Rosneft and Gazprom Neft.

Crude also had carryover support from Tuesday, when the Trump administration announced plans to refill the Strategic Petroleum Reserve (SPR) by 1 million bbl in December and January.

Concerns about a global supply glut are a major bearish factor for crude prices.  Last Tuesday, the IEA forecast a record global oil surplus of 4.0 million bpd for 2026.

A decrease in crude oil held worldwide on tankers is bullish for oil prices.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days fell by -12% w/w to 78.44 million bbl in the week ended October 17.

Crude prices found support after OPEC+ on October 5 agreed to a 137,000 bpd increase in its crude production target, starting in November, which was below market expectations of a potential 500,000 bpd boost.  OPEC+ is in the midst of boosting output by a further 1.66 million bpd to fully reverse the 2.2 million bpd production cut seen in early 2024.  OPEC’s September crude production rose by +400,000 bpd to 29.05 million bpd, the highest in 2.5 years.

Reduced crude exports from Russia are supportive of oil prices.  Ukraine has targeted at least 28 Russian refineries over the past two months, exacerbating a fuel crunch in Russia and limiting Russia’s crude export capabilities.  Ukrainian drone and missile attacks on Russian refineries and oil export terminals curbed Russia’s total seaborne fuel shipments to 1.88 million bpd in the first ten days of October, the lowest average in over 3.25 years.

The outlook for higher crude production in Iraq is expected to boost global oil supplies, which is bearish for crude prices.  Iraq recently announced that it had reached an agreement with the regional government of Kurdistan to resume oil exports from the Kurdish region via a pipeline to Turkey, which had been halted for the past two years due to a payment dispute.  Iraqi Foreign Minister Hussein said that the resumption of crude exports could add 500,000 bpd of fresh oil supplies to global markets.

Wednesday’s EIA report showed that (1) US crude oil inventories as of October 17 were -4.0% below the seasonal 5-year average, (2) gasoline inventories were -0.6% below the seasonal 5-year average, and (3) distillate inventories were -6.6% below the 5-year seasonal average.  US crude oil production in the week ending October 17 fell -0.1% w/w to 13.629 million bpd, falling back from a record high of 13.636 million bpd on the week of October 10.

Baker Hughes reported Friday that the number of active US oil rigs in the week ending October 24 rose by +2 rigs to 420 rigs, modestly above the 4-year low of 410 rigs from August 1.  Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.

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. This article was originally published on Barchart.com