Key Takeaways
- December WTI crude oil and RBOB gasoline prices saw modest gains on Friday.
- Reports of potential U.S. military action in Venezuela and the extending tariff truce between the U.S. and China provided support for crude oil prices.
- A stronger dollar and concerns over China’s manufacturing data acted as headwinds for oil.
- Sanctions on Russian oil producers and attacks on refineries in Russia are tightening global crude supply.
- U.S. crude oil inventories remain below the seasonal 5-year average, while production is at a record high.
Market Performance and Influences
December WTI crude oil futures concluded Friday with a gain of +0.41%, or 0.68%, while December RBOB gasoline futures closed up +0.0082%, or 0.43%. Both energy commodities experienced upward price movement, with gasoline reaching a one-month high.
Crude oil prices were buoyed by reports suggesting that the United States might initiate military strikes against OPEC producer Venezuela. This geopolitical tension, coupled with the extended tariff truce between President Trump and President Xi Jinping, which supports economic growth and energy demand, provided a positive floor for crude prices.
⚡ However, gains in crude were somewhat capped by a strengthening dollar index, which reached a 2.75-month high. Additionally, concerns regarding energy demand in China, the world’s largest crude importer, emerged following news that China’s manufacturing Purchasing Managers’ Index (PMI) for October fell to 49.0, indicating a continued contraction and marking the steepest decline in six months.
Geopolitical and Supply Chain Factors
Potential U.S. Action in Venezuela
Crude oil prices found support from reports by the Miami Herald and The Wall Street Journal indicating that the U.S. has identified targets in Venezuela, including military facilities, for potential strikes as part of its counter-narcotics campaign. An attack on Venezuela could potentially disrupt the country’s crude oil supplies.
Sanctions and Their Impact on Russian Supply
Further support for crude oil prices stems from expectations of reduced crude supply from Russia in the global market. The U.S. representative to NATO stated that sanctions on Russian energy would be enforced. The Trump administration recently announced sanctions on Rosneft PJSC and Lukoil PJSC, two of Russia’s largest oil producers, citing Russia’s lack of commitment to a peace process to end the war in Ukraine.
The European Union has also implemented a transaction ban on Rosneft and Gazprom Nef, along with sanctions on 117 additional shadow-fleet vessels and 45 entities facilitating Russia’s evasion of sanctions. This includes twelve companies based in China and Hong Kong.
⚡ Reduced crude exports from Russia are a significant bullish factor for oil prices. Ukraine has targeted at least 28 Russian refineries over the past two months, intensifying a fuel crunch within Russia and thereby limiting its crude export capabilities. Ukrainian drone and missile attacks on Russian refineries and oil export terminals led to Russia’s total seaborne fuel shipments averaging 1.88 million barrels per day in the first ten days of October, the lowest average in over three and a quarter years.
Inventory and Production Data
Data from Vortexa reported on Monday indicated that crude oil stored on tankers that have remained stationary for at least seven days increased by 12% week-over-week to 89.75 million barrels in the week ending October 24. This suggests a potential build-up in floating storage.
The International Energy Agency (IEA) had previously forecasted a record global oil surplus of 4.0 million barrels per day for 2026 in a report on October 14, which could present a long-term bearish outlook.
Bloomberg reported on Monday that OPEC+ is expected to focus on a plan for a third monthly oil production increase of 137,000 barrels per day for December during its upcoming meeting. This aligns with market consensus. OPEC+ is currently in the process of boosting output by an additional 1.66 million barrels per day, aiming to fully reverse the 2.2 million barrels per day production cut implemented in early 2024. OPEC’s crude production in September rose by 400,000 barrels per day to 29.05 million barrels per day, the highest level in two and a half years.
📊 The U.S. Energy Information Administration (EIA) report released on Wednesday showed that as of October 24, U.S. crude oil inventories were 5.8% below the seasonal 5-year average. Gasoline inventories were 2.7% below the average, and distillate inventories were 8.4% below the 5-year seasonal average, indicating relatively tight domestic stockpiles for refined products.
💡 However, U.S. crude oil production reached a record high of 13.655 million barrels per day in the week ending October 24, an increase of 0.1% week-over-week. This record production level could provide a counterbalancing force to global supply concerns.
📍 Baker Hughes reported on Friday that the number of active U.S. oil rigs decreased by 6 rigs to 414 in the week ending October 31. This number remains modestly above the 4-year low of 410 rigs reported in August. Over the past two and a half years, the number of U.S. oil rigs has seen a significant decline from the 5.5-year high of 627 rigs reported in December 2022.
Final Thoughts
Crude oil and gasoline markets experienced upward pressure driven by geopolitical events and supply concerns, particularly regarding Venezuela and Russia. While a stronger dollar and weakening Chinese manufacturing data presented headwinds, supported expectations of reduced Russian supply and potential disruptions in Venezuela provided a bullish undertone. U.S. production remains robust, alongside below-average domestic inventories for refined products.
