Quick Summary
- December WTI crude oil and RBOB gasoline futures saw significant gains on Thursday, marking multi-week highs.
- The rally was primarily driven by new sanctions imposed by the US and EU on Russia’s energy sector.
- These sanctions raise concerns about potential disruptions to Russian crude production and exports, impacting global supply.
- Mixed signals exist regarding supply, with IEA forecasting a surplus while falling crude on tankers and reduced Russian exports offer support.
- US inventory data shows crude and gasoline inventories below their 5-year seasonal averages.
Rally in Crude Oil and Gasoline Prices Driven by Sanctions
December WTI crude oil futures experienced a substantial surge, closing up +3.29 points, or 5.62%, on Thursday. Concurrently, December RBOB gasoline futures also posted strong gains, finishing up +0.0636, or 3.52%.
This marks the second consecutive day of sharp increases for both crude oil and gasoline prices. Crude oil reached a two-week high, while gasoline attained a three-week high following the latest developments.
Impact of US and EU Sanctions on Russian Energy Sector
The primary catalyst for the rally appears to be the escalation of sanctions by the United States and the European Union targeting Russia’s energy sector and related infrastructure. These measures introduce the possibility of significant disruptions to Russian crude production and exports, potentially tightening global oil supplies.
The Trump administration’s announcement of sanctions on Rosneft PJSC and Lukoil PJSC, Russia’s largest oil producers, contributed to the upward momentum. The stated reason for these sanctions cites Russia’s lack of serious commitment to a peace process to end the war in Ukraine. The potential implications include restricting foreign companies and countries from doing business with these entities and limiting their access to the international financial system.
Additionally, the EU adopted a new package of sanctions aimed at Russia’s energy infrastructure. This package also includes sanctions on 117 shadow-fleet vessels and 45 entities that have facilitated Russia’s evasion of existing sanctions, with a notable number of these entities based in China and Hong Kong.
Other Factors Influencing Crude Oil Markets
Carryover support for crude prices stems from the US administration’s earlier announcement of plans to refill the Strategic Petroleum Reserve (SPR) by one million barrels in December and January.
Supply and Demand Dynamics Shaping the Outlook
Despite recent upticks, concerns about a potential global oil supply glut remain a significant bearish factor. The International Energy Agency (IEA) recently forecast a record global oil surplus of 4.0 million barrels per day for 2026.
Easing tensions in the Middle East have also contributed to a reduction in the risk premium associated with crude oil prices. This is partly due to the ceasefire agreement between Israel and Hamas, which lessens the immediate likelihood of disruptions to crude supplies from the region.
📍 A decrease in the volume of crude oil stored on tankers worldwide is a bullish indicator for oil prices. Vortexa reported that crude oil held on tankers stationary for at least seven days fell by 12% week-over-week to 78.44 million barrels in the week ending October 17.
⚡ Support for crude prices was evident after OPEC+ agreed on October 5 to a modest increase of 137,000 barrels per day in its crude production target, beginning in November. This increase was below market expectations for a potential boost of 500,000 barrels per day. The group is in the process of increasing output by an additional 1.66 million barrels per day to fully reverse earlier production cuts totaling 2.2 million barrels per day from early 2024. OPEC’s crude production in September rose by 400,000 barrels per day to 29.05 million barrels per day, reaching the highest level in 2.5 years.
📌 Reduced crude exports from Russia are currently supportive of oil prices. Ukraine has targeted at least 28 Russian refineries over the past two months, exacerbating a fuel crunch within Russia and limiting its crude export capabilities. Drone and missile attacks by Ukraine on Russian refineries and oil export terminals have reduced Russia’s total seaborne fuel shipments to an average of 1.88 million barrels per day 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 typically acts as a bearish factor for crude prices. Iraq recently announced an agreement with the regional government of Kurdistan to resume oil exports from the Kurdish region via a pipeline to Turkey. These exports had been halted for the past two years due to a payment dispute. Iraq’s Foreign Minister stated that the resumption of crude exports could add 500,000 barrels per day of new oil supplies to global markets.
US Inventory and Production Data
Wednesday’s EIA report indicated that as of October 17, US crude oil inventories were 4.0% below the seasonal 5-year average. Gasoline inventories were 0.6% below the seasonal 5-year average, and distillate inventories were 6.6% below the 5-year seasonal average.
US crude oil production for the week ending October 17 decreased by 0.1% week-over-week to 13.629 million barrels per day, slightly down from a record high of 13.636 million barrels per day reported in the week of October 10.
Reporting on Friday, Baker Hughes stated that the number of active US oil rigs remained unchanged at 418 for the week ending October 17. This figure is modestly above the 4-year low of 410 rigs recorded on August 1. Over the past 2.5 years, the number of US oil rigs has declined significantly from a 5.5-year high of 627 rigs reported in December 2022.
Expert Summary
The crude oil and gasoline markets experienced notable gains, largely driven by new US and EU sanctions against Russia’s energy sector, which could impact global supply. While supply gluts remain a concern, reduced tanker storage and Russian export limitations offer bullish support. US inventory levels are currently below historical seasonal averages.