July WTI crude oil (CLN24) on Tuesday closed up +0.16 (+0.21%), and July RBOB gasoline (RBN24) closed down -0.20 (-0.08%).
Crude oil and gasoline prices settled mixed on Tuesday. Crude recovered from early losses Tuesday and rose to a 1-week high on concerns global oil supplies will remain tight. Last Thursday, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said OPEC+ could pause or reverse its decision to boost crude production if prices falter. Gains in crude were limited Tuesday after the dollar index climbed to a 4-week high. Also, an increase in Russian crude exports is adding to global oil supplies and is weighing on prices.
Higher than expected Russian crude output and exports are bearish for oil prices. Russian crude production averaged 9.39 million bpd in May, which was +3.8% above its agreed target of 9.049 million bpd. Russia's fuel exports have also increased as refineries come back online after being damaged by Ukrainian drone attacks. Russian fuel exports in the week to June 9 rose +10% to 3.53 million bpd.
In a bearish factor, Morgan Stanley on Tuesday cut its Q3 WTI crude price forecast to $86 a barrel from a previous forecast of $90 a barrel, citing higher-than-expected inventories and weakness in demand trends.
A decline in 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 -19% w/w to 75.59 million bbl as of June 7.
OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies. OPEC+ agreed on June 2 to extend the 2 million bpd of voluntary crude production cuts into Q3 but then gradually phase out the cuts over the following 12 months beginning in October. OPEC pledged to extend its crude production cap at about 39 million bpd to the end of 2025. Also, the UAE was given a 300,000 bpd boost to its production target for 2025.
An increase in OPEC crude output is negative for oil prices. OPEC May crude production rose +60,000 bpd to 26.96 million bpd, a 5-month high.
Crude oil prices have underlying support from concern about the Hamas-Israel conflict. Israel's military is conducting 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.
The consensus is for Wednesday's weekly EIA crude inventories to fall by -1.5 million bbl and gasoline supplies to climb by +1.5 million bbl.
Last Wednesday's EIA report showed that (1) US crude oil inventories as of May 31 were -3.9% below the seasonal 5-year average, (2) gasoline inventories were -0.7% below the seasonal 5-year average, and (3) distillate inventories were -6.8% below the 5-year seasonal average. US crude oil production in the week ending May 31 was unchanged w/w at 13.1 million bpd, slightly below the recent record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ended June 7 fell -4 rigs to a 2-1/4 year low of 492 rigs. 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.
