June WTI crude oil (CLM24) on Friday closed up +0.83 (+1.05%), and June RBOB gasoline (RBM24) closed up +3.64 (+1.43%).
Crude oil and gasoline posted moderate gains on Friday, with crude climbing to a 2-week high and gasoline climbing to a 1-week high. Crude prices gained Friday on carryover support from Wednesday's weekly EIA report, which showed declines in crude, gasoline, and distillate inventories. Friday's mixed Chinese economic news limited the upside in crude prices.
Friday's mixed Chinese economic news shows an uneven recovery that may limit energy demand in China, the world's second-largest crude consumer. China's April industrial production rose +6.7% y/y, stronger than expectations of +5.5% y/y. However, China's April retail sales rose +2.3% y/y, weaker than expected at +3.7% y/y, and the pace of increase was slow in 16 months. Also, China Apr new home prices fell -0.58% y/y and Apr used home prices fell -0.94% y/y, the biggest declines in 9-1/2 years.
Strength in the crude crack spread is supportive of crude prices. Friday's crack spread rose to a 1-week high, encouraging refiners to boost their crude oil purchases and refine it into gasoline and distillates.
Crude oil prices have underlying support from concern about the Hamas-Israel conflict. Israel's military is poised to conduct major military operations in the southern Gaza city of Rafah despite opposition from the Biden administration. There is also concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran. Meanwhile, attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.
In a bearish factor for crude oil prices, the International Energy Agency (IEA) on Wednesday cut its 2024 global fuel consumption estimate to 1.1 million bpd, down -140,000 bpd from an April forecast.
A negative factor for crude prices is concern that some OPEC+ members want to boost their crude production levels, which may lead to infighting among the group when it meets on June 1. Bloomberg reported Tuesday that the UAE, Iraq, Algeria, and Kazakhstan aim to boost their production quotas. Saudi Arabia has pushed back against boosting output and has urged OPEC+ to be cautious about adding barrels to the market. The market consensus is that the 22-nation alliance will prolong its current crude production cuts into the second half of this year. OPEC+ members, at their last meeting on April 3, left their existing production cuts of about 2 million bpd in place until the end of June.
Higher than-expected Russian crude output is bearish for oil prices. According to Bloomberg calculations based on official data, Russian crude production in April was 9.418 million bpd, more than +300,000 bpd above the 9.1 million bpd target Russia agreed to with OPEC+. Also, Russian crude processing averaged 5.45 million bpd in the first half of May, up 4% above April's level as refineries recovered from Ukrainian drone strikes. Meanwhile, Russia's fuel exports have been undercut by recent Ukrainian drone attacks on Russian refineries as fuel exports in the week to May 12 fell by about -440,000 bpd to 3.24 million bpd, the lowest in eight weeks.
Reduced crude oil in floating storage is bullish for prices. Monday's weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -11% w/w to 55.92 million bbl as of May 10, the lowest in 4 years.
Wednesday's EIA report showed that (1) US crude oil inventories as of May 10 were -3.9% below the seasonal 5-year average, (2) gasoline inventories were -1.2% below the seasonal 5-year average, and (3) distillate inventories were -7.1% below the 5-year seasonal average. US crude oil production in the week ending May 10 was unchanged w/w at 13.1 million bpd, slightly below the recent record high of 13.3 million bpd.
Baker Hughes reported Friday that active US oil rigs in the week ended May 17 rose by +1 rig to 497 rigs, slightly above the 2-year low of 494 rigs posted on November 10. The number of US oil rigs has fallen over the past year from the 4-year high of 627 rigs posted 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.
