After a period of consolidation, crude prices moved steadily higher this week right through the $64/$65/$66/bbl levels but have now breached a key technical indicator that signals they have gone too high, too fast.
The geopolitical risk premium in oil prices rose this week in the form of sanctions and outright attacks on Russian infrastructure along with Russian jets entering the airspace of neighboring NATO member countries. A slight draw in crude inventory with larger declines in refined products stored also added some support for prices.
WTI was as low as $61.85/bbl on Tuesday with its high on Friday at $66.45. Brent crude hit its low on Monday at $66.10/bbl with its high of $70.75 occurring Friday. Both grades look to settle higher week-on-week. The WTI/Brent spread has widened to $4.35.
Ukraine drone strikes continue to target Russian refineries which is impacting the production of diesel and gasoline. Russia has been banning gasoline exports and will now ban diesel exports through the end of the year. However, Russia has been able to resume crude exports from its main hub after drone attacks occurred Wednesday. And, with the reduced refinery consumption, Russia has increased its oil exports to 3.2 million b/d this month.
While not directly impacting Russian energy exports, recent flyovers into NATO countries by its military jets has created a new area of geopolitical tensions especially as US Presiddent Donald Trump encouraged the NATO members to shoot them down. Russian jets have also been conducting flights off of Alaska.
Meanwhile, traders are waiting for the impact of the more recently announced EU sanctions on oil entities in countries dealing with Russia’s oil sector. And, despite Trump’s attempt to pressure Hungary into cutting Russian energy imports, Prime Minister Orban at a White House meeting reinforced his country’s need, and right, to purchase energy from Russia to keep its economy running. It’s a similar stance to the one taken by India which has recently suggested that, if allowed to purchase crude from Venezuela and Iran, it could reduce its imports of Urals.
Finally, Iraq has indicated that exports from Kurdistan of about 240,000 b/d will finally resume after the 2-year halt.
The Energy Information Administration’s (EIA) Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week decreased by 0.6 million b/d while the Strategic Petroleum Reserve was up 23,000 bbl to 406 million bbl.
Total US oil production was 13.5 million b/d vs. 13.2 last year at this time.
Recent EIA data indicates that 2025 will be another annual record for oil production as year-to-date supply has averaged 13.44 million b/d, 1.9% above last year’s record pace. However, the agency predicts slower growth ahead due to rising costs, depleting prime acreage, increased capital discipline among producers and, infrastructure bottlenecks.
Sales of existing homes last month fell -0.2% leading to an inventory of 4.6 months of supply. The PCE index, the Federal Reserve’s preferred inflation gauge, rose last month but not enough to discourage possible future interest rate cuts. The index was +0.3% for August and +2.7% from August 2024. Investors are optimistic about another rate reduction next month but less so for November. US Personal Spending rose +0.6% In Aug vs. an expectation of +0.5%. All (3) major US stock indexes are lower week-on-week as investors gauge the impact of the PCE report. The USD Is higher which may keep a cap on crude’s rally.
Oil, technical analysis