May WTI crude oil (CLK24) on Monday closed up +0.45 (+0.65%), and May RBOB gasoline (RBK24) closed down -1.06 (-0.39%).
Crude and gasoline prices on Monday settled mixed, with crude climbing to a 5-month high. Signs of strength in US and Chinese energy demand pushed crude prices higher Monday after US and Chinese manufacturing activity expanded more than expected last month. Gains in crude were limited after the dollar index climbed to a 4-1/2 month high, and the crude crack spread fell to a 3-1/2 week low.
Strength in US and Chinese manufacturing activity is bullish for energy demand and crude prices. The US Mar ISM manufacturing index rose +2.5 to 50.3, stronger than expectations of 48.3 and the strongest pace of expansion in 1-1/2 years. Also, the the China Caixin Mar manufacturing PMI rose +0.2 to a 13-month high of 51.1 and remained above the 50.0 level that indicates expansion for a fifth month, the longest streak in more than two years.
Concern that the war between Israel and Hamas could escalate to other countries in the Middle East gave crude prices a boost Monday after Israel launched an airstrike last Friday on Iran's embassy compound in Syria, killing one of Iran's top military commanders.
Crude has support from the recent Ukrainian drone attacks on Russian refineries that damaged several Russian oil processing facilities, limiting Russia's fuel exporting capacity. Bloomberg calculations show Russian refiners processed 5.03 million bpd of crude during March 14-20, down -400,000 bpd from the average for the first 13 days of March and the lowest in 10 months. JPMorgan Chase said it sees 900,000 bpd of Russian refinery capacity that could be offline "for several weeks if not months" from the attacks, adding $4 a barrel of risk premium to oil prices.
However, the disruption to Russian refiners has yet to affect Russian fuel exports because of the large number of Russian ships at sea transporting crude. Russia's fuel exports in the week to March 24 rose +360,000 bpd from the prior week to 3.32 million bpd.
A decline in crude 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 67.10 million bbl as of March 29.
Weakness in the crude crack spread is negative for crude prices as the crack spread Monday fell to a 3-1/2 week low. The weaker crack spread discourages refiners from purchasing crude oil and refining it into gasoline and distillates.
Crude oil prices are seeing support from expectations that global crude supplies will remain tight as OPEC+ delegates are expected to keep crude production quotas unchanged when they meet this week. Several OPEC delegates said they see no need to recommend changes to the group's crude production levels. OPEC+ will meet on April 3 to assess implementation of its crude output cuts, which are scheduled to remain in place through the end of June.
OPEC+ announced on March 3 that it would extend its current crude production cuts of about 2 million bpd until the end of June. The group said its crude production cuts will be "returned gradually subject to market conditions" after the second quarter. However, OPEC Feb crude production rose +110,000 bpd to 26.680 million bpd, a bearish factor for oil prices as Iraq and UAE continue to pump above their production quotas.
The recent strength of Chinese crude oil demand is bullish for prices. Recent government data showed that China processed a record 118.76 MMT of crude in January and February, up +3% from the same time last year. Also, Chinese fuel demand jumped, with expressway passenger volumes 54% higher than 2019 levels, while airlines saw 19% more people than the pre-pandemic peak.
Vortexa said on March 4 that OPEC+ compliance with crude production cuts is still "questionable." Vortexa said that Russian oil exports were about 500,000 bpd above the OPEC+ commitments, and there are "little indications that Russia is actively cutting either crude production or exports." Bloomberg reported last Tuesday that Russia's seaborne crude oil exports in the week ended March 10 rose +590,000 bpd and that Russia's flows were 420,000 bpd above Russia's pledge.
Crude prices have underlying support from the Israel-Hamas war and concern that all-out war might spread to Lebanon. Hezbollah and Israel have traded fire almost daily since the Israel-Hamas war erupted on October 7. Also, the US and UK have engaged in airstrikes against Houthi rebels in Yemen in retaliation for Houthi attacks on commercial shipping in the Red Sea. 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.
Last Wednesday's EIA report showed that (1) US crude oil inventories as of March 22 were -1.9% below the seasonal 5-year average, (2) gasoline inventories were -1.3% below the seasonal 5-year average, and (3) distillate inventories were -6.3% below the 5-year seasonal average. US crude oil production in the week ending March 22 was unchanged w/w at 13.1 million bpd, below the recent record high of 13.3 million bpd.
Baker Hughes reported last Thursday that active US oil rigs in the week ended March 29 fell by -3 rigs to 506 rigs, moderately above the 2-year low of 494 rigs posted on November 10. The number of US oil rigs has fallen over the past year from the 3-3/4 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.
