October WTI crude oil (CLV26) slipped -2.97 (-2.90%), and October RBOB gasoline (RBV26) declined -0.0499 (-1.47%).
October WTI crude prices pulled back on Thursday following a +6.7% rally that pushed the contract to a three-and-a-half-month high. The retreat came after the International Energy Agency (IEA) warned that elevated oil prices and constrained supply would drive the sharpest decline in global oil demand since the Covid-19 pandemic. The IEA raised its estimate of this year’s global oil deficit to 1.7 million bpd, up from last month’s projection of 1.3 million bpd, and pushed the anticipated return to a global oil surplus out to 2027 from its prior forecast of late 2026.
Reports indicated that two vessels were struck by unidentified projectiles near Oman on Thursday, reportedly in an incident attributed to Iran. Iran stated earlier this week that it stands ready for an intensified conflict and would escalate counterstrikes should the United States continue targeting its territory and infrastructure. The possibility of a prolonged conflict disrupting crude shipments from the Middle East continues to support oil prices.
Crude also received support as Yemen’s Houthi rebels targeted energy facilities in Saudi Arabia, forcing several oil operations to suspend production. Saudi Arabia announced on Thursday that its crude output in August fell to 6.238 million bpd, the lowest level since 1990.
The Houthi rebels seized the strategic Red Sea port city of Mokha on Thursday, located approximately 50 miles from the narrow Bab al-Mandab Strait at the southern end of the Red Sea, strengthening the group’s capacity to interdict maritime traffic. Since the closure of the Strait of Hormuz, Saudi Arabia has rerouted much of its oil exports through the Red Sea; however, escalating hostilities with the Houthis over the past two months have disrupted that corridor.
Vitol Group reported that global oil markets continue to tighten, with roughly 2 million bpd lost from Middle Eastern crude exports and an additional 2 million bpd disrupted from Russia due to Ukraine’s drone strikes. Data compiled by Bloomberg, Kpler, and Vortexa showed that Saudi Arabia’s August crude exports fell to approximately 3 million bpd, the lowest level in nine years.
Crude prices were further bolstered by concerns that Israel could become drawn deeper into the US-Iran conflict. Israeli Defense Minister Katz stated last Thursday that an Iranian attack on Israel would release Israel from any existing restrictions on its response against the Iranian regime. Israel has escalated its strikes against Iran-backed Hezbollah in Lebanon, diminishing prospects for ending hostilities in the region and swiftly reopening the Strait of Hormuz. Additionally, Israel has targeted Iran-backed Hamas in Gaza, while the Yemen-based Houthis have continued attacking ships in the Red Sea.
Ukraine has intensified drone strikes targeting Russian oil infrastructure, curtailing Russian crude production and exports. According to EA Analytics, Russian crude-processing rates averaged 3.51 million bpd in July, the lowest in 24 years, due to damage to energy infrastructure from Ukrainian drone and missile attacks. The attacks reduced Russia’s crude output in July to 8.89 million bpd, the lowest in six years, based on secondary source estimates published by OPEC. Reuters reported on August 28 that Russia’s gasoline production declined to roughly 80,000 tons per day in August, only 70% of domestic demand, triggering shortages across the country.
As a bearish influence on crude, OPEC delegates approved a final production increase of +188,000 bpd for September on August 2. The group has now fully restored the 1.65 million bpd supply cutback enacted in 2023 and indicated plans to hold output steady for the remainder of the year following the September hike. However, OPEC+ production expansions may prove challenging given renewed US-Iran military activity in the region. OPEC’s August crude production declined by -900,000 bpd to 19.91 million bpd.
Vortexa reported on Monday that crude oil stored on tankers stationary for at least seven days fell -16% week over week to 92.64 million barrels in the week ended September 4.
Thursday’s weekly EIA report was largely bearish for crude oil and petroleum products. EIA crude inventories declined by -391,000 bbl, a smaller draw than the expected -1.35 million bbl. Gasoline supplies unexpectedly rose by +1.27 million bbl against expectations of a -1.25 million bbl draw, while distillate stockpiles increased by +2.09 million bbl versus forecasts of a -700,000 bbl draw. US crude production rose +0.6% week over week to a record 13.947 million bpd. On the positive side, crude inventories at Cushing, the delivery point for WTI futures, fell by -684,000 bbl.
Thursday’s EIA report further showed that US crude oil inventories as of September 4 were +0.1% above the seasonal five-year average, gasoline inventories stood -5.5% below the five-year seasonal norm, and distillate inventories were -14.0% below the five-year seasonal average. US crude oil production in the week ending September 4 rose +0.6% week over week to a record 13.947 million bpd.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ended September 4 increased by +2 to 449 rigs, modestly below the 1.25-year high of 455 rigs set during the week of August 14.