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June WTI crude oil (CLM23) on Tuesday closed down -4.00 (-5.29%), and June RBOB gasoline (RBM23) closed down -11.47 (-4.50%).
Crude oil and gasoline prices Tuesday sold off sharply, with crude posting a 5-week low and gasoline posting a 6-week low. Crude prices are under pressure on concern a slowdown in the global economy would curb energy demand. Tuesday's weaker-than-expected U.S. JOLTS job openings and factory orders reports signaled weakness in the U.S. economy, while Monday's weaker-than-expected Chinese Apr manufacturing and non-manufacturing reports indicated weakness in China's economy. The U.S. and China are the two largest crude oil consumers in the world.
Crude prices were little changed from their Tuesday afternoon closing level despite the API reporting U.S. crude supplies fell -3.9 million bbl last week. The consensus is for Wednesday's weekly EIA crude inventories to fall by -500,000 bbl.
Tuesday's U.S. economic news was weaker than expected and was bearish for energy demand and crude prices. Mar JOLTS job openings fell -341,000 to a 23-month low of 9.59 million, showing a weaker labor market than expectations of 9.736 million. Also, Mar factory orders rose +0.9% m/m, weaker than expectations of +1.2% m/m.
Another bearish factor for crude prices is concern that tighter monetary policy from the world's central banks will slow economic growth and energy demand. The Reserve Bank of Australia on Tuesday unexpectedly raised its benchmark interest rate by +25 bp to 3.85%. Meanwhile, the FOMC on Wednesday is expected to raise interest rates by +25 bp, and the ECB is expected to raise rates by +25 bp at Thursday's policy meeting.
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.
In a bullish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week fell -7.2% w/w to 88.87 million bbl in the week ended April 28.
Strength in energy demand in India, the world's third largest crude consumer, is bullish for prices after India's Ministry of Petroleum and Natural Gas reported India's Mar crude processing rose +3.1% y/y to 23 MMT. Also, India's Mar crude imports rose +7.9% y/y to 20.5 MMT.
Signs of stronger Chinese fuel demand are positive for crude prices. China's CCTV reported that about 9 million passenger trips would be made during the week-long Golden Week holidays in China that started April 29, up +30% from 6.9 million trips in 2019 before the pandemic.
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 400,000 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 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 April 21 were -0.5% below the seasonal 5-year average, (2) gasoline inventories were -7.2% below the seasonal 5-year average, and (3) distillate inventories were -12.4% below the 5-year seasonal average. U.S. crude oil production in the week ended April 21 fell -0.8% w/w to 12.2 million bpd, only 0.9 million bpd (-6.9%) 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 April 28 were unchanged at 591 rigs, moderately 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.
