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War spike implodes One-day 6% drop on Israel's restrained response to Oct. 1 attack by Iran
Steve Sutherlin Petroleum News
Alaska North Slope crude bounced Oct. 30 to claw back part of a 6% slide on Oct. 28 -- up some 2% on a surprise drawdown of U.S. crude and gasoline inventories.
The Organization of the Petroleum Exporting Countries and its allied producing nations added additional optimism with reports that the cartel was considering a delay of scheduled crude output increases.
ANS leapt $1.51 Oct. 30 to close at $71.69 per barrel, as West Texas Intermediate leapt $1.40 to close at $68.61 and Brent leapt $1.43 to close at $72.55.
Just two days earlier, crude prices suffered the sharpest one-day percentage decline since 2022 on the news that Israel had spared oil and gas infrastructure and nuclear facilities in Iran in a retribution air strike for an Iranian missile attack on Israel Oct. 1.
Israel restrained its targeting to military sites -- primarily taking out missiles, launching pads, and other assets.
Some of the strikes -- while sparing civilian areas -- were near Tehran, sending a warning message to Iran that Israel can strike its capital city.
As a result, traders rapidly unwound a crude price premium built on fears that Israel's retaliation would expand hostilities in the region. ANS plummeted $4.10 on Oct. 28 to close at $70.63, WTI plummeted $4.40 to close at $67.38 and Brent plummeted $4.63 to close at $71.42.
The indexes added red ink Oct. 29 as ANS fell 44 cents to close at $70.18, WTI inched 17 cents lower to close at $67.21 and Brent slid 30 cents to close at $71.12.
"Crude oil prices have pared the entire October rally with WTI plunging more than 14.9% off the monthly high," City Index said in an Oct. 29 report.
ANS jumped $1.38 Oct. 25 to close at $74.73, while WTI leapt $1.59 to close at $71.78 and Brent vaulted $1.67 to close at $76.05. The Friday close notched a gain of some 4% on the week for the benchmarks, as concerns about Middle East escalation took the stage.
"Geopolitics is the leading force today that we are seeing, otherwise we are just waiting to see what happens with the (U.S.) election, and what direction that will push markets in," Tim Snyder, chief economist at Matador Economics told Reuters for an Oct. 25 report.
An Oct. 24 announcement that U.S. and Israeli officials planned to meet in Doha to restart Gaza peace and hostage release talks sent prices lower. ANS shed 57 cents to close at $73.35, while WTI and Brent each shed 58 cents to close at $70.19 and $74.38 respectively.
Wednesday to Wednesday, ANS fell $2.23 from its Oct. 23 close of $73.72, to $71.69 Oct. 30.
ANS sported a $3.48 premium over WTI Oct. 30, while closing at an 86-cent discount to Brent.
Bullish market factors U.S. commercial crude oil inventories for the week ending Oct. 25 -- excluding Strategic Petroleum Reserve stocks -- were down 0.5 million barrels to 425.5 million barrels, 4% below the five-year average for the time of year, the U.S. Energy Information Administration said in its weekly report Oct. 30.
The gasoline draw was particularly bullish.
Total motor gasoline inventories posted a 2.7 million barrels draw for the period to 210.9 million barrels, 3% below the five-year average for the time of year, the EIA said. Distillate fuel inventories decreased by 1.0 million barrels.
"The most supportive element was gasoline inventories drawing amid higher implied demand week-on-week," Kpler analyst Matt Smith told Reuters.
On the supply side, a Reuters report that OPEC+ may delay its 180,000 barrel per day output increase scheduled for December is bullish for crude.
"OPEC+ has always advised that the unwinding of voluntary supply cuts would be subject to market conditions," Harry Tchilinguirian, head of research at Onyx Capital Group told Reuters. "That they may be reconsidering the timing of a return of their barrels is not surprising given the weak macroeconomic realities, particularly in China, which have led to downward revisions in global demand growth estimates."
OPEC+ is withholding production of 5.86 million bpd -- 5.7% of global oil demand.
A decision to hold production steady could be made in the first week of November, two OPEC+ sources told Reuters.
Demand will get a boost from a U.S. Department of Energy Request for Proposal issued Oct. 28 to buy oil for the Strategic Petroleum Reserve.
The DOE is seeking up to 3 million barrels of United States produced sour crude oil for April and May 2025 delivery to Bryan Mound, Texas, at a price no higher than $79.99 per barrel. Bids are due by Nov. 6.
China: Not so fragile Bullish expectations among crude traders have been dampened in second half 2024 by the notion that Chinese oil demand is stagnant this year and in fact may have peaked, but Wood Mackenzie does not concur.
Monetary easing should juice liquidity in China's economy, giving manufacturers and property developers access to credit, WoodMac said in its Oct. 24 edition of The Edge. The anticipated liquidity supports a forecast by the WoodMac China team of a 0.4 million barrel per day boost for Chinese liquids demand in 2024, "the largest global increase by any country."
What's more, WoodMac analysts are calling for "similar levels of growth" in their forecast for 2025 and 2026, while predicting that Chinese peak oil demand won't arrive until 2027.
But risks to the consultancy's outlook "are skewed more to the downside," it said, adding, "To succeed, China's stimulus package must boost private property sales, currently at a five-year low across major cities, and reverse a manufacturing PMI that's moving to contraction."
WoodMac said ongoing weakness in those sectors has induced a lull in diesel use -- off by 150,000 bpd -- contributing to its downward revision in 2024 diesel demand.
Further, the electrification of China's transportation sector is zapping gasoline demand.
"EV sales in China have soared to over 1 million vehicles a month in the second half of 2024 -- equivalent to around 30% growth over last year -- as battery costs have continued to fall," WoodMac said. "As a result, gasoline bears the brunt, slowing to just over 40,000 b/d in H2 2024 year-on-year."
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