July WTI crude oil (CLN23) on Wednesday closed up +1.43 (+1.96%), and July RBOB gasoline (RBN23) closed up +6.00 (+2.34%).
Crude oil and gasoline prices posted moderate gains, with crude climbing to a 3-week high and gasoline climbing to a 5-week high. Crude prices opened higher Wednesday on carryover support from Tuesday when Saudi Arabia's Energy Minister warned short sellers in the oil market of pain ahead. Gains in crude accelerated after weekly EIA crude inventories unexpectedly plunged. A bearish factor for crude was Wednesday's rally in the dollar index to a 2-month high.
Crude prices have carryover support from Tuesday when Saudi Arabian Energy Minister Prices Abdulaziz bin Salman said short sellers in the crude market "will be ouching like they did back in April," when OPEC+ unexpectedly cut crude production.
Goldman Sachs on Monday said, "Inventory draws appear to have started" among global visible stocks, signaling a turning point for the global oil market. Goldman reiterated its view that Brent crude would reach $95 per barrel in December.
The outlook for stronger U.S. fuel demand is bullish for crude prices. AAA is forecasting that as many as 42.3 million Americans will travel 50 miles or more from home this Memorial Day weekend, up +7% y/y and the highest for a Memorial Day weekend since 2005.
Crude has support on reduced Canadian crude output as wildfires in Alberta have halted at least 240,000 bpd and possibly 300,000 bpd of crude production from several Canadian crude producers. The total number of wildfires in Alberta stood at 71 Tuesday afternoon, with 20 still considered out of control. However, that's down from 93 fires last Friday, with cooler temperatures and rain expected to provide further relief in the days ahead.
On the bearish side, India's Apr crude imports fell -8.3% y/y to 19.8 MMT as processors curbed operating rates amid a drop in petroleum-product exports. India is the world's third-largest crude-consuming country in the world.
In a bearish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week rose +1.3% w/w to 91.15 million bbl in the week ended May 19.
The ongoing halt of Iraqi crude exports from the Turkish port of Ceyhan is tightening global oil supplies and is bullish for crude prices. The Turkish government said it wants to negotiate a $1.5 billion settlement that it has been ordered to pay before allowing Iraqi crude exports to resume through its pipeline. Oil exports of 500,000 bpd from the Turkish port of Ceyhan have been halted since March 25 after Iraq won an arbitration case from the International Chamber of Commerce that said Turkey violated a 1973 pipeline transit agreement by allowing crude from the Kurdish region to be exported without Iraqi government consent.
Crude oil prices are being undercut by signs that Russia has not delivered on its threat to cut crude output. Tanker-tracking data from Bloomberg shows Russia's crude exports rose for the sixth week ending May 19 to nearly 4 million bpd. Crude shipments from Russian ports are +1.2 million bpd higher than at the end of 2022, with most of the crude going to India and China. Russia has halted the publication of crude and condensate production data in an attempt to disguise if it has actually cut crude output.
Crude prices surged on April 3 after OPEC+ announced a surprise oil production cut of more than 1 million bpd starting May 1. Saudi Arabia said the cuts were a "precautionary measure aimed at supporting the stability of the oil market." OPEC Mar crude production fell by -80,000 bpd to 29.16 million bpd.
Wednesday's weekly EIA inventory report was mostly bullish for crude prices. EIA crude inventories unexpectedly plunged -12.46 million bbl versus expectations of a +2.0 million bbl build. Also, EIA gasoline supplies fell -2.05 million bbl, a bigger draw than expectations of -1.6 million bbl. In addition, EIA distillate supplies unexpectedly fell -561,000 bbl to a 1-year low versus expectations of a +500,000 bbl build. On the bearish side, crude stockpiles at Cushing, the delivery point of WTI futures, rose +1.76 million bbl.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of May 19 were -3.0% below the seasonal 5-year average, (2) gasoline inventories were -7.8% below the seasonal 5-year average, and (3) distillate inventories were -17.2% below the 5-year seasonal average. U.S. crude oil production in the week ended May 19 rose +0.8% w/w to 12.3 million bpd, only 0.8 million bpd (-6.1%) 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 May 19 fell by -11 to an 11-month low of 575 rigs, falling further below the 2-1/2 year high of 627 rigs posted on December 2. U.S. active oil rigs have more than tripled from the 17-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.
