Oil Prices Slip on Technicals and Easing of Supply
Last week’s “too high, too fast” rally ran into headwinds this week on optimism regarding disrupted Saudi Arabia supplies. Additionally, a key technical indicator was breached signaling prices had moved considerably north of their recent average. WTI’s High was Tuesday’s $107.75/bbl for October while the Low was Friday’s $99.10. October Brent crude hit its High on Friday at $109.80/bbl with the low on Thursday at $101.55. WTI is higher on the week, matching levels not seen since mid-May while Brent is slightly lower than last Friday. The WTI/Brent spread has now tightened to $4.05.
Saudi Arabia Pipeline Damage Assessment and Recovery Efforts
Saudi Arabia is assessing the damage to its East-West pipeline. While some operations may resume, the kingdom estimates a return to full capacity could take 6-8 weeks barring further attacks by Iran. In the meantime, officials are considering use of ship-to-ship transfers and US Navy escorts to move some oil past the Strait of Hormuz on the southern end near Oman. That announced strategy helped put a cap on the rally that started last week.
Iranian Leadership’s Statement on Strait of Hormuz and Global Oil Supplies
Meanwhile, Iranian leadership has now allegedly stated that the Strait of Hormuz will not be opened 100% until President Trump leaves office in January 2029. Tanker tracker Kpler estimated that about 10 million b/d did make it through the strait this past week but that is still down from the 17-20 million b/d pre-war level. Offsetting the large decline in oil supplies, the International Energy Agency (IEA) has reduced the 2026 demand picture by 2.5 million b/d, the largest crude demand destruction since the 2020 pandemic and the second worst in 60 years’ time.
China’s Oil Stockpiling and Refining Capacity Expansion
It was widely known that last year, China continued to stockpile oil for reserve purposes which served to hold prices higher than they may have otherwise been. That, along with a continued diversification of their energy portfolio, allowed China to purchase about 23% less oil during the Iran War thus far. This, too, has helped keep a lid on global oil prices with Goldman Sachs analysts estimating about a $10/bbl lower impact. China has also expanded its refining capacity which has helped temper refined product prices as well.
US Energy Information and Federal Reserve Rate Hike
The Energy Information Administration’s (EIA) Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week decreased while production held at 13.9 million b/d vs. 13.4 last year. The Strategic Petroleum Reserve (SPR) was down 0.2 million bbl to 285 million bbl (the lowest level since 1982). US exploration and production company, Continental Resources announced an MoU with PDVSA to develop a major oil block in the Oronoco Belt in Venezuela. Continental has been the major player in the Bakken Shale in North Dakota.
US Industrial Production and Retail Sales
The US Federal Reserve made a move Wednesday to curb inflation by raising interest rates by 0.25%, the first increase in 3 years’ time. Further increases are expected should inflation not recede as a result of this action. However, unless energy prices subside, it’s highly likely that both the CPI and PCE will not decline. Additionally, analysts are now pointing to the rising cost of microchips as impacting the cost of consumer electronics as hyper scaling datacenter builders compete over a dwindling supply.
US industrial production held flat from July to August while analysts expected a 0.3% increase. Pending home sales increased slightly last month while new housing starts dropped. Manufacturing output declined 0.3% with the production of durable goods down 0.5%. However, all 3 major US stock indexes were lower week-on-week. The USD is only slightly lower on the week as is gold. Retails sales for August rose 1.2% vs. an expected +0.8%. The Dow and S&P are lower week-on-week while the tech-heavy NASDAQ is higher.
Original Article: Oil prices slip on technicals and easing of supply — Ogj