August WTI crude oil (CLQ23) on Tuesday closed up +1.84 (+2.52%), and Aug RBOB gasoline (RBQ23) closed up +5.31 (+2.07%).
Crude oil and gasoline prices Tuesday rallied, with crude posting a 5-week high and gasoline posting a 2-week high. A slump in the dollar index Tuesday to a 2-month low was bullish for energy prices. Crude prices also rose Tuesday after China signaled it would take more steps to revive its economy, a positive factor for economic growth and energy demand.
Crude prices rallied Tuesday after China took steps to support the property market by extending loan relief for developers. Also, Chinese state-run financial newspapers today ran reports flagging the likely adoption of additional property-supportive policies, along with measures to boost business confidence. Any improvement in China's economy, the world's second-largest, would be bullish for energy demand and crude prices.
In a supportive factor for oil prices, Saudi Arabia last week said it would extend its unilateral 1 million bpd production cut through August, keeping Saudi Arabia's crude output at about 9 million bpd, the lowest level in several years. Also, Russia pledged last Monday to cut 500,000 bpd of crude output in August voluntarily. However, Russia has yet to implement its pledged crude production cuts fully. Russian crude production cuts totaled 350,000 bpd in June, below the 500,000 bpd of cuts it said it would implement in March. Meanwhile, OPEC crude production in June rose +80,000 bpd to 28.57 million bpd.
Oil prices continue to be undercut by concern about weaker Chinese energy demand. China's National Petroleum Corp (CNPC), China's largest oil and gas producer, cut its 2023 China crude oil demand forecast on June 20 to +3.5% to 740 MMT from a March forecast of +5.1% to 756 MMT. In another sign of weak Chinese oil demand, analytics firm Kpler recently reported that China's crude oil stockpiles rose to a 2-year high in May of 966 million bbl, well above the five-year average of 858 million bbl.
An increase in crude in floating storage is bearish for prices. Monday's weekly data from Vortexa shows the amount of crude oil held worldwide on tankers that have been stationary for at least a week rose +5.5% w/w to 112.07 million bbl as of July 7.
The consensus is for Wednesdays' weekly EIA crude inventories to fall -50,000 bbl.
Last Thursday's EIA report showed that (1) U.S. crude oil inventories as of June 30 were -1.5% below the seasonal 5-year average, (2) gasoline inventories were -7.6% below the seasonal 5-year average, and (3) distillate inventories were -15.0% below the 5-year seasonal average. U.S. crude oil production in the week ended June 30 rose +1.6% w/w to 12.4 million bpd, matching the 3-year high of 12.4 million bpd posted in the week ended June 9. U.S. crude oil production is well below the Feb-2020 record-high of 13.1 million bpd.
Baker Hughes reported last Friday that active U.S. oil rigs in the week ended June 30 fell by -5 rigs to a 15-month low of 540 rigs. That is well below the 3-1/4 year high of 627 rigs posted on December 2, 2022. U.S. active oil rigs have more than tripled from the 18-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity.
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.
