Strengthening Dollar and Decreasing Russian Oil Exports Foster Crude Oil Pricing
In the world of oil, recent developments have been shaping the market landscape. Here's a roundup of the key events that have occurred over the past month.
OPEC and its allies, collectively known as OPEC+, agreed on September 7 to increase crude production by 137,000 barrels per day (bpd), starting in October. However, the agreed increase is less than the 547,000 bpd increase the group decided to boost output in September and August.
The global oil market has been facing challenges due to the ongoing conflict in Ukraine. Ukrainian drone attacks have damaged Russian oil infrastructure and crude-exporting hubs along Russia's Baltic Coast, curbing Russian crude exports and tightening global oil supplies. The Kirishi refinery, one of Russia's biggest refineries, halted crude processing after damage caused by a Ukrainian drone attack.
Concerns that the ongoing war in Ukraine could lead to additional sanctions on Russian energy exports, reducing global oil supplies, have been a significant factor in the market. President Trump announced threatening economic sanctions against Russia in connection with the Ukraine conflict, particularly targeting Russia's trade partners such as China and India, aiming to pressure major buyers of Russian oil. He also conditioned further sanctions on NATO countries ceasing Russian oil imports, which include Turkey, Hungary, and Slovakia.
Despite these challenges, some positive indicators have emerged. For instance, the number of active US oil rigs in the week ending September 12 rose by +2 to 416 rigs. This increase in drilling activity could potentially boost US crude production in the coming weeks.
In terms of demand, August manufacturing production unexpectedly rose +0.2% month-on-month, and August retail sales rose +0.6% month-on-month, stronger than expectations of +0.2% month-on-month.
On the supply side, OPEC's August crude production rose by +400,000 bpd to 28.55 million bpd, the highest in over two years. However, it's important to note that OPEC+ said restarting the remainder of the 1.66 million bpd crude production it had idled will be contingent on 'evolving market conditions.'
Inventory levels have also been a focus. As of September 5, US crude oil inventories were -3.2% below the seasonal 5-year average, while gasoline inventories were -0.6% below the seasonal 5-year average. Distillate inventories, on the other hand, were -10.4% below the 5-year seasonal average.
Looking at the price movements, October WTI crude oil (CLV25) is up +1.08 (+1.71%), and October RBOB gasoline (RBV25) is up +0.0209 (+1.04%). The slump in the dollar index (DXY00) to a 2.25-month low on today's date is also bullish for energy prices.
The International Energy Agency (IEA) last Thursday boosted its 2026 global crude surplus estimate to 3.33 million bpd. However, the ongoing geopolitical tensions and potential for further sanctions could potentially offset this surplus.
In conclusion, the global oil market is navigating a complex landscape, with both challenges and opportunities. The impact of the Ukraine conflict on Russian oil exports, the response of OPEC+, and the shifting inventory levels and prices are key factors shaping the market dynamics. As always, the situation remains fluid, and further developments are expected in the coming weeks.
