March WTI crude oil (CLH26) on Tuesday closed down -0.40 (-0.62%), and March RBOB gasoline (RBH26) closed down -0.0263 (-1.32%).
Crude oil and gasoline prices settled lower on Tuesday after US retail sales in December unexpectedly stagnated, a sign of weakness in consumer spending that is bearish for economic growth and energy demand. Losses in crude were limited on Tuesday after the dollar index ($DXY) fell to a 1-week low. Also, US-Iran tensions are adding a risk premium to crude prices.
Tuesday’s report on US retail sales was negative for crude after Dec retail sales were unchanged m/m, weaker than the +0.4% m/m expected, suggesting some weakness in consumer spending. Also, weakness in Dec retail sales could lead to a downward revision in Q4 GDP, a bearish factor for energy demand and crude prices.
Concerns over an escalation of geopolitical risk in the Middle East have added a risk premium to crude oil, supporting prices. The US Department of Transportation on Monday issued a maritime advisory stating that American-flagged ships should stay as far as possible from Iranian waters when navigating the Strait of Hormuz. There are fears that if negotiations between Iran and the US fail to come to an agreement on Iran ending its enrichment of nuclear fuel, the US could proceed with military strikes against Iran, which could disrupt key shipping lanes as well as Iran’s 3.3 million bpd of crude production. Iran is OPEC’s fourth-largest producer, and a US attack on the country could potentially close the Strait of Hormuz, through which about 20% of the world’s oil passes.
An increase in crude exports from Venezuela is also boosting global oil supplies and is bearish for prices. Reuters reported last Monday that Venezuelan crude exports rose to 800,000 bpd in January from 498,000 bpd in December.
Crude oil also has support after Russia recently threw cold water on hopes of a breakthrough in peace talks with Ukraine, after the Kremlin said the “territorial issue” remains unresolved with Ukraine, and there’s “no hope of achieving a long-term settlement” to the war until Russia’s demand for territory in Ukraine is accepted. The outlook for the Russia-Ukraine war to continue will keep restrictions on Russian crude in place and is bullish for oil prices.
On Tuesday, the EIA raised its 2026 US crude production estimate to 13.60 million bpd from 13.59 million bpd last month, and raised its US 2026 energy consumption estimate to 96.00 (quadrillion btu) from 95.37 last month. The IEA last month cut its 2026 global crude surplus estimate to 3.7 million bpd from last month’s estimate of 3.815 million bpd.
Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days fell by -2.8% w/w to 101.55 million bbl in the week ended February 6.
On February 1, OPEC+ said it would stick to its plan to pause production increases through 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. 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 January crude production fell by -230,000 bpd to a 5-month low of 28.83 million bpd.
Ukrainian drone and missile attacks have targeted at least 28 Russian refineries over the past six 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.
The consensus is that Wednesday’s weekly EIA crude inventories fell by -24,000 bbl, and gasoline supplies rose by +840,000 bbl.
Last Wednesday’s EIA report showed that (1) US crude oil inventories as of January 30 were -4.2% below the seasonal 5-year average, (2) gasoline inventories were +3.8% above the seasonal 5-year average, and (3) distillate inventories were -2.2% below the 5-year seasonal average. US crude oil production in the week ending January 30 was down -3.5% w/w to a 14-month low of 13.215 million bpd, moderately below the record high of 13.862 million bpd from the week of November 7.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ended February 6 rose by +1 to 412 rigs, just above 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. This article was originally published on Barchart.com
