August WTI crude oil (CLQ24) on Tuesday closed down -0.57 (-0.68%), and Aug RBOB gasoline (RBQ24) closed down -0.49 (-0.19%).
Crude oil and gasoline prices closed moderately lower on Tuesday. Crude prices Tuesday retreated from a 2-1/2 month high and turned lower after Russian crude exports rebounded to a 2-month high. Crude oil Tuesday initially moved higher due to heightened tensions in the Middle East, with Israel close to a full-blown war with Hezbollah in Lebanon and with Houthi rebels in Yemen stepping up their attacks on commercial shipping in the region. Also, concern that a stronger-than-expected US hurricane season could lead to reduced US crude output is supporting prices after Hurricane Beryl strengthened to a Category 5 hurricane, the strongest storm to ever form in the Atlantic this early in the year.
US economic news Tuesday was better-than-expected and bullish for energy demand and crude prices. The May JOLTS job openings unexpectedly rose +221,000 to 8.140 million, showing a stronger labor market than expectations of a decline to 7.946 million.
Crude oil prices have underlying support from concern about the escalation of the Hamas-Israel conflict. Israel's military continues to conduct operations in Gaza, and there is also concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran as hostilities escalate between Israel and Hezbollah. Meanwhile, ongoing 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.
Strength in the crude crack spread supports crude prices as the crack spread Tuesday rose to a 5-week high, encouraging refiners to boost their crude purchases and refine them into gasoline and distillates.
Higher than-expected Russian crude output and exports are bearish for oil prices. Russian crude production averaged 9.39 million bpd in May, which was +3.8% above its agreed target of 9.049 million bpd. Also, Russian fuel exports in the week to June 30 rose by +620,000 bpd to 3.67 million bpd, the most in two months.
A decline in crude oil 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 -24% w/w to 73.29 million bbl as of June 28.
OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies. OPEC+, on June 2, extended the 2 million bpd of voluntary crude production cuts into Q3 but said they would gradually phase out the cuts over the following 12 months, beginning in October. OPEC pledged to extend its crude production cap at about 39 million bpd to the end of 2025. Also, the UAE was given a 300,000 bpd boost to its production target for 2025.
A decrease in OPEC crude output is positive for oil prices. OPEC June crude production fell -80,000 bpd to 26.98 million bpd.
The consensus is that Wednesday's weekly EIA crude inventories will fall by -550,000 bbl, and gasoline stockpiles will fall by -390,000 bbl.
Last Wednesday's EIA report showed that (1) US crude oil inventories as of June 21 were -1.5% below the seasonal 5-year average, (2) gasoline inventories were -0.2% below the seasonal 5-year average, and (3) distillate inventories were -8.8% below the 5-year seasonal average. US crude oil production in the week ending June 21 was unchanged w/w at 13.2 million bpd, just below the recent record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ending June 28 fell -6 rigs to a 2-1/2 year low of 479 rigs. The number of US oil rigs has fallen over the past year from the 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.
