Oil Prices Slip 5% After Supply Fears Ease In Europe And Red Sea Tensions Cool

Petroleum futures are trying to recover after a major wave of selling Wednesday that knocked 5% off of prices for diesel and crude oil contracts just after they reached multi-month highs earlier in the week. Easing concerns about supply shortages in Europe seemed to be a major factor in the reversal yesterday, while the weekly and monthly inventory data is a mixed bag. The restart of the U.S. Federal Government seems to be getting a shoulder shrug in most markets so far today as Wednesday night’s vote seems to have become a foregone conclusion earlier in the week.

Part of the easing supply concern for Europe comes as Bulgaria, Romania, and Slovakian leaders all get creative to force new ownership of Russian-linked refineries that may otherwise be forced to cease operations once the latest U.S. sanctions targeting Lukoil and Rosneft take hold next week. Hungary meanwhile earned an exemption from the sanctions after a meeting with the U.S. President last Friday adding to the long string of loopholes that have made most sanctions largely ineffective in ending the war over the past 3.5 years.

There was also a major step towards normalizing shipping through the Red Sea as Houthi leaders announced they have ended their campaign against Israeli ships and ports, that has caused the majority of bulk traffic to take the long way around to avoid their missile and drone strikes for the past couple of years. The announcement is a somewhat surprising shift towards peace from the rebel group that’s been at war with somebody for more than a decade, and shippers may be cautious in returning to their transit of the area, but for now the risk of attack seems to have gone away.

The IEA conceded a stronger demand outlook and a pause in the “massive” supply growth in its latest Monthly Oil Market report, while also noting the “slew of unplanned outages” at refineries around the world that pushed margins to a 2 year high. The agency continues to beat the drum that the world is exceedingly oversupplied with oil as demand growth is modest by historical standards, and new output from the Americas is coming on top of the OPEC & Friends production increases. The agency noted that so far, the sanctions on Lukoil and Rosneft have not had any notable impact on shipments, but those sanctions don’t actually start until November 21.

The EIA increased its forecast for Brent crude oil prices by $3/barrel (5%) next year owing to ongoing stockpiling by the Chinese, and the latest sanctions on Russia’s two largest producers. Although the forecast is higher than October’s report, the average prices is still expected to be in the mid-$50 range, which they believe will lead to a 10% drop in average U.S. Gasoline prices and a 7% drop in average diesel prices compared to 2024 levels.

The EIA’s winter fuels outlook suggests this winter will be similar to last, with only a small decline in heating degree days on average. The report forecast an increase in natural gas and electricity prices from last year while Propane and Heating oil prices will drop. The drop in predicted heating oil prices seems like it was probably done prior to the recent runup in HO futures that has pushed the East Coast into a steep backwardation and set the stage for local shortages if we do see a sustained cold snap in the next month or two.

The API estimated a build in crude oil and diesel stocks of 1.3 million and 944,000 barrels respectively, while US gasoline inventories were estimated to decline by 1.4 million barrels. The DOE’s weekly report is due out at noon eastern today due to the Veteran’s Day holiday.

PBF announced 4 days of planned flaring at its 160mb/day Torrance (LA refinery) with work set to start tomorrow and run through Monday.

If you’re a reader interested in what’s riding on the EPA’s pending RFS decisions, specifically the proposal to cut RIN generation in half for imported feedstocks in fuels, read this excellent analysis by Scott Irwin and the farmdoc daily group at the University of Illinois. If you’re more of an audiobook person, the main point is the new rules could result in an 88% spike in domestic feedstock demand which will certainly roil markets for soybeans, waste oil, renewable diesel fuel and RINs.