August WTI crude oil (CLQ23) this morning is up +0.92 (+1.23%), and Aug RBOB gasoline (RBQ23) is up +2.67 (+1.02%).
Crude oil and gasoline prices this morning are moderately higher, with crude climbing to a 3-1/4 month nearest-futures high and gasoline rising to a 3-week high. Today's selloff in the dollar index (DXY00) to a 14-1/2 month low is bullish for energy prices. Also, a rally in the S&P 500 to a 14-1/2 month high today signals optimism in the economic outlook that supports energy demand. Crude prices fell back from their best levels after weekly EIA crude inventories unexpectedly increased.
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.
Today's weekly EIA inventory report was mostly bearish for crude and its products. EIA crude inventories unexpectedly rose +5.95 million bbl versus expectations of a -50,000 bbl draw. Also, EIA gasoline supplies fell -4,000 bbl, less than expectations of -1.35 million bbl. In addition, EIA distillate stockpiles unexpectedly rose +4.82 million bbl versus expectations of an -800,000 bbl draw. On the positive side, crude supplies at Cushing, the delivery point of WTI futures, fell -1.61 million bbl.
Today's EIA report showed that (1) U.S. crude oil inventories as of July 7 were +0.7% above the seasonal 5-year average, (2) gasoline inventories were -7.0% below the seasonal 5-year average, and (3) distillate inventories were -13.4% below the 5-year seasonal average. U.S. crude oil production in the week ended July 7 fell -0.8% w/w to 12.3 million bpd, falling back from the prior week's 3-year high of 12.4 million bpd. 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.
