February WTI crude oil (CLG26) today is up +0.99 (+1.77%), and February RBOB gasoline (RBG26) is up +0.0435 (+2.57%).
Crude oil and gasoline prices are sharply higher after today’s better-than-expected US economic news shows strength in energy demand. Also, the upcoming annual rebalancing of commodity indexes will see buying of oil contracts, a bullish factor for crude. On the negative side is today’s rally in the dollar index to a 4-week high and the negative carryover from Wednesday, after the US lifted some sanctions on Venezuelan crude exports and President Trump said Venezuela’s interim authorities agreed to give up as many as 50 million bbl of “high-quality sanctioned oil” to the US.
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Crude prices are moving higher today amid expectations of buying crude futures contracts for the annual rebalancing of commodity indexes. Citigroup projects that the BCOM and S&P GSCI indexes, the two largest commodity indexes, will see inflows of $2.2 billion in futures contracts over the next week to rebalance the indexes.
Today’s better-than-expected US economic news is positive for energy demand and crude prices. Dec Challenger job cuts fell -8.3% y/y to 35,553, a 17-month low, and weekly initial unemployment claims rose +8,000 to 208,000, showing a stronger labor market than expectations of 212,000. Also, Q3 nonfarm productivity rose +4.9%, close to expectations of +5.0% and the biggest increase in 2 years.
Crude prices came under pressure on Wednesday when the US Energy Department said that it would begin selectively rolling back sanctions to enable the transport and sale of Venezuelan crude and oil products to global markets, potentially boosting global oil supplies. Venezuela is currently the twelfth largest crude producer in OPEC.
Concerns about energy demand are negative for crude prices after Saudi Arabia on Monday cut the price of its Arab Light crude for February delivery to customers for a third month.
Morgan Stanley predicted that a global oil market surplus is likely to expand further and peak mid-year, pressuring prices, as it cut its crude price forecast for Q1 to $57.50/bbl from a prior forecast of $60/bbl, and cut its Q2 crude price forecast to $55/bbl from $60/bbl.
Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell -3.4% w/w to 119.35 million bbl in the week ended January 2.
Strength in Chinese crude demand is supportive for prices. According to Kpler data, China’s crude imports in December are set to increase by 10% m/m to a record 12.2 million bpd as it rebuilds its crude inventories.
Crude garnered support after OPEC+ on Sunday said it would stick to its plan to pause production increases in Q1 of 2026. OPEC+ at its November 2025 meeting announced that members would raise production by +137,000 bpd in December, but will then pause the production hikes in Q1-2026 due to the emerging global oil surplus. The IEA in mid-October forecasted a record global oil surplus of 4.0 million bpd for 2026. OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has another 1.2 million bpd of production left to restore. OPEC’s December crude production rose by +40,000 bpd to 29.03 million bpd.
Ukrainian drone and missile attacks have targeted at least 28 Russian refineries over the past four months, limiting Russia’s crude oil export capabilities and reducing global oil supplies. Also, since the end of November, Ukraine has ramped up attacks on Russian tankers, with at least six tankers attacked by drones and missiles in the Baltic Sea. In addition, new US and EU sanctions on Russian oil companies, infrastructure, and tankers have curbed Russian oil exports.
Last month, the IEA projected that the world crude surplus will widen to a record 3.815 million bpd in 2026 from a 4-year high of over 2.0 million bpd in 2025.
Last month, OPEC revised its Q3 global oil market estimates from a deficit to a surplus, as US production exceeded expectations and OPEC also ramped up crude output. OPEC said it now sees a 500,000 bpd surplus in global oil markets in Q3, versus the previous month’s estimate for a -400,000 bpd deficit. Also, the EIA raised its 2025 US crude production estimate to 13.59 million bpd from 13.53 million bpd last month.
Wednesday’s EIA report showed that (1) US crude oil inventories as of January 2 were -4.1% below the seasonal 5-year average, (2) gasoline inventories were +1.6% above the seasonal 5-year average, and (3) distillate inventories were -3.1% below the 5-year seasonal average. US crude oil production in the week ending January 2 was down -0.1% w/w to 13.811 million bpd, just below the record high of 13.862 million bpd from the week of November 7.
Baker Hughes reported last Tuesday that the number of active US oil rigs in the week ended January 2 rose by +3 rigs to 412 rigs, recovering from the 4.25-year low of 406 rigs posted in the week ended December 19. Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.For more information please view the Barchart Disclosure Policy here.
