June WTI crude oil (CLM23) on Monday closed up +1.07 (+1.53%), and June RBOB gasoline (RBM23) closed up +4.18 (+1.72%).
Crude oil and gasoline prices Monday shook off early losses and closed moderately higher. A weaker dollar Monday gave energy prices a boost along with expectations for U.S. fuel demand to increase this Memorial Day holiday. However, gains in crude were limited as the ongoing U.S. debt-ceiling negotiations inject a risk-off sentiment in asset markets.
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 third-busiest Memorial Day on record.
Crude has support on reduced Canadian crude output after wildfires in Alberta halted about 145,000 bpd of crude production from several Canadian crude producers. Extreme heat in western Canada sparked additional wildfires over the weekend, with 90 active wildfires in Alberta as of Monday morning, with 23 still considered out of control.
A bullish factor for crude was U.S. Energy Secretary Granholm's comment last Thursday that the U.S. aims to start buying crude to refill the SPR after the conclusion of a 26 million bbl sale of SPR crude is scheduled to finish in late June.
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 +9% w/w to 86.69 million bbl in the week ended May 12.
Signs of stronger Chinese fuel demand are supportive for crude prices after China’s Ministry of Culture and Tourism reported on May 4 that the number of domestic trips made over the five-day Golden Week holidays reached 274 million, up +19% from the pre-pandemic level in 2019 and almost +71% higher than last year.
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 jumped above 4 million bpd in the week of April 28. 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.
Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of May 5 were -1.2% below the seasonal 5-year average, (2) gasoline inventories were -6.8% below the seasonal 5-year average, and (3) distillate inventories were -16.1% below the 5-year seasonal average. U.S. crude oil production in the week ended May 5 was unchanged 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 12 fell by -2 to an 11-month low of 586 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.
