Crude Oil Prices Slump as President Trump Downplays Escalation of US-Iran War

December WTI crude oil (CLZ26) is down -3.99 (-4.15%) today, and December RBOB gasoline (RBZ26) is down -0.1023 (-3.48%).

Crude oil and gasoline prices are sharply lower today, with Dec WTI crude oil falling to a 3-week low and gasoline dropping to a 3-month low.  Comments today from President Trump eased concerns about escalation of the US-Iran war when he played down the prospect of fresh strikes on Iran.  Crude prices fell further today after weekly EIA crude inventories fell less than expected and oil supplies at Cushing rose.

Crude oil prices fell today on comments from President Trump, who said he had no immediate plans to launch strikes on Iran following the midterm elections.  Also, Democrats' retaking of Congress in the US midterm elections has fueled speculation that the US may try to end the US-Iran conflict sooner rather than later. 

Despite the ongoing US-Iran conflict, oil supplies are still leaving the Middle East.  Combined exports from Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait climbed 10% to 15.53 million bpd in October, roughly in line with levels shipped at the start of the year, according to tanker-tracking data compiled by Bloomberg.

Higher Saudi crude output is bearish for crude prices.  Saudi Arabia said its Sep crude production rose by 2 million bpd (+40% m/m) to 8.732 million bpd, recovering from a 36-year low in August.  However, Saudi oil production continues to be threatened by Houthi missile attacks on Saudi Arabia and by the Houthi threats to oil shipments near the Bab-al-Mandeb Strait.

Recent attacks by Ukraine on Russian oil infrastructure have curbed Russian crude production and exports. Ukraine has attacked five of Russia’s ten largest oil-processing plants.  According to EA Analytics, Russian crude-processing rates averaged 3.51 million bpd in July, the lowest in 24 years, amid damage to Russian energy infrastructure caused by drone and missile attacks from Ukraine.  Russian crude processing rates recovered slightly to 3.98 million bpd in September as damaged refineries struggle to come back online.

On the bearish side for crude, the International Energy Agency (IEA) on September 11 warned that high oil prices and restricted oil supply will cause the biggest drop in global oil demand this year since the Covid-19 pandemic.  Despite the projected demand drop, the IEA raised its estimate for this year’s global oil deficit to 1.7 million bpd from last month’s 1.3 million bpd estimate due to the restricted supply caused by the US-Iran war. The IEA said the return of a global oil surplus will be delayed until 2027, later than its previous estimate of late 2026.

On Sunday, OPEC+ agreed to keep oil production quotas unchanged for December.  As a bearish factor for crude, OPEC delegates on August 2 approved their final increase of +188,000 bpd in crude production for September. On paper, the group has restored all 1.65 million bpd of the supply cutback it made in 2023 and said it plans to hold output steady for the rest of the year after the September hike.  However, OPEC+ may struggle to deliver planned production increases amid Middle East shipping disruptions.  OPEC's Sep crude production rose by +1.12 million bpd to 20.71 million bpd. 

Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell -11% w/w to 78.36 million bbl in the week ended October 30, the lowest level in more than 3 months.

Today’s weekly EIA report was mixed for crude oil and products.  On the bearish side, EIA crude inventories fell by -865,000 bbl, a smaller draw than expectations of -1.7 million bbl.  Also, crude supplies at Cushing, the delivery point for WTI futures, rose by +280,000 bbl. In addition, US crude production in the week ended October 30 rose to a record high 14.003 million bpd.  On the bullish side, EIA gasoline supplies unexpectedly fell -222,000 bbl versus expectations of a +1.0 million bbl build.  Also, EIA distillate stockpiles fell -3.57 million bbl to a 23-year low, a larger draw than expectations of -1.5 million bbl.

Today’s EIA report showed that (1) US crude oil inventories as of October 30 were -5.1% below the seasonal 5-year average, (2) gasoline inventories were -0.9% below the seasonal 5-year average, and (3) distillate inventories were -12.7% below the 5-year seasonal average.  In a bearish factor, US crude oil production in the week ending October 30 rose +0.1% w/w to a new record high of 14.003 bpd.

Baker Hughes reported last Friday that the number of active US oil rigs in the week ended October 30 rose by +2 rigs to 462, matching the 1.5-year high of 462 rigs posted on October 9.

On the date of publication, Rich Asplund did not directly have a position 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.