March WTI crude oil (CLH26) on Wednesday closed up +2.86 (+4.59%), and March RBOB gasoline (RBH26) closed up +0.0536 (+2.80%).
Crude oil and gasoline prices rallied sharply on Wednesday amid mounting geopolitical risks. The likelihood of the Russian-Ukrainian war continuing is bullish for oil prices as it will keep restrictions on Russian crude and limit global oil supplies. Also, concerns remain that a conflict between the US and Iran could put crude flows through the Middle East at risk, which is supporting oil prices. In addition, signs of US economic resilience are supportive for energy demand and crude prices.
US economic news on Wednesday was better than expected and positive for energy demand. Dec capital goods new orders nondefense ex-aircraft and parts (a proxy for capital spending) rose +0.6% m/m, stronger than expectations o +0.3% m/m. Also, Dec housing starts rose +6.2% m/m to a 5-month high of 1.404 million, stronger than expectations of 1.304 million. In addition, Jan manufacturing production rose +0.6% m/m, stronger than expectations of +0.4% m/m and the biggest increase in 11 months.
Wednesday’s US-brokered meeting in Geneva to end the war between Russia and Ukraine ended early as Ukrainian President Zelenskiy accused Russia of dragging out the war, which would keep restrictions on Russian crude in place. Russia has said the “territorial issue” remains unresolved with Ukraine, and there’s “no hope of achieving a long-term settlement” to the war until Russia’s demand for territory in Ukraine is accepted. The outlook for the Russia-Ukraine war to continue will keep restrictions on Russian crude in place and is bullish for oil prices.
Crude prices also rose on Wednesday after Axios reported that there’s no evidence of a diplomatic breakthrough with Iran on a nuclear deal and any military operation against Iran would likely be a joint US-Israeli campaign that could last for weeks and be much broader in scope than last month’s US operation in Venezuela.
Escalation of geopolitical risk in the Middle East has added a risk premium to crude oil, supporting prices. The Wall Street Journal said last Wednesday that the US has discussed seizing tankers carrying Iranian oil. Also, the US is sending a second aircraft carrier strike group to the Middle East to prepare for military action should nuclear talks with Iran fail. The US Department of Transportation recently issued a maritime advisory stating that American-flagged ships should stay as far as possible from Iranian waters when navigating the Strait of Hormuz. Iran is OPEC’s fourth-largest producer, and a US attack on the country could disrupt its 3.3 million bpd of crude production and potentially close the Strait of Hormuz, through which about 20% of the world’s oil passes.
Mounting crude supplies in floating storage are a bearish factor for oil prices. According to Vortexa data, about 290 million bbl of Russian and Iranian crude are currently in floating storage on tankers, more than 50% higher than a year ago, due to blockades and sanctions on Russian and Iranian crude.
An increase in crude exports from Venezuela is also boosting global oil supplies and is bearish for prices. Reuters reported last Monday that Venezuelan crude exports rose to 800,000 bpd in January from 498,000 bpd in December.
Last Tuesday, the EIA raised its 2026 US crude production estimate to 13.60 million bpd from 13.59 million bpd last month, and raised its US 2026 energy consumption estimate to 96.00 (quadrillion btu) from 95.37 last month. The IEA last month cut its 2026 global crude surplus estimate to 3.7 million bpd from last month’s estimate of 3.815 million bpd.
Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell by -8.2% w/w to 86.95 million bbl in the week ended February 13.
On February 1, OPEC+ said it would stick to its plan to pause production increases through Q1 of 2026. OPEC+ at its November 2025 meeting announced that members would raise production by +137,000 bpd in December, but will then pause the production hikes in Q1-2026 due to the emerging global oil surplus. OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has another 1.2 million bpd of production left to restore. OPEC’s January crude production fell by -230,000 bpd to a 5-month low of 28.83 million bpd.
Ukrainian drone and missile attacks have targeted at least 28 Russian refineries over the past six months, limiting Russia’s crude oil export capabilities and reducing global oil supplies. Also, since the end of November, Ukraine has ramped up attacks on Russian tankers, with at least six tankers attacked by drones and missiles in the Baltic Sea. In addition, new US and EU sanctions on Russian oil companies, infrastructure, and tankers have curbed Russian oil exports.
The consensus is that Thursday’s weekly EIA crude inventories rose by +1.65 million bbl, and gasoline supplies fell by -332,000 bbl.
Last Wednesday’s EIA report showed that (1) US crude oil inventories as of February 6 were -3.4% below the seasonal 5-year average, (2) gasoline inventories were +4.4% above the seasonal 5-year average, and (3) distillate inventories were -3.3% below the 5-year seasonal average. US crude oil production in the week ending February 6 rose +3.8% w/w to a 14-month low of 13.713 million bpd, just below the record high of 13.862 million bpd from the week of November 7.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ended February 13 fell by 3 to 409, just above the 4.25-year low of 406 rigs posted in the week ended December 19. 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
