July WTI crude oil (CLN23) this morning is down -0.60 (-0.86%), and July RBOB gasoline (RBN23) is down -0.34 (-0.13%). July Nymex natural gas (NGN23) is up +0.003 (+0.09%).
Crude oil and gasoline prices this morning are mixed. Crude prices gave up an early advance and moved moderately lower after an unexpected build in weekly EIA crude inventories. Crude prices this morning initially moved higher after the dollar index fell to a 4-week low and after the S&P 500 rallied to a 13-3/4 month high, which shows confidence in the economic outlook that is supportive for energy demand.
July nat-gas is slightly higher and posted a 2-week high. Nat-gas has support on the outlook for increased power demand in Texas, the largest nat-gas consuming state. The Electricity Reliability Council of Texas (ERCOT) said Tuesday that due to soaring temperatures this week, it expects air-conditioning use in Texas to climb to a record 80.3 gigawatts on Thursday and even higher on Friday. U.S. nat-gas prices also have carryover support from a rally in European nat-gas prices today to a 1-1/2 month high. However, nat-gas prices gave up most of their gains after forecaster Atmospheric G2 said abnormally cool temperatures next week in the eastern and western U.S. will keep a lid on total U.S. power demand.
Crude prices found support today after China issued its third batch of crude oil quotas this year, a positive sign for Chinese energy demand. Bloomberg reported that the Chinese government gave refiners an allocation of 62.28 million tons, which took the total quota this year to around 194 million tons, +18% more than the same time last year.
Today's U.S. May PPI report showed prices eased to +1.1% y/y from +2.3% y/y in Apr, better than expectations of +1.5% y/y and the smallest increase in over two years. The easing of U.S. producer prices bolsters the case for the Fed to pause raising interest rates at today's FOMC meeting and is supportive of crude prices.
Resurgent wildfires in Canada may curb Canadian crude output and is bullish for prices. Rystad Energy said Tuesday that 300,000 bpd of crude production in British Columbia is under threat as fires reignite across the region.
A bearish factor for crude is the weakness in Chinese energy demand, which has resulted in higher Chinese crude oil stockpiles. According to analytics firm Kpler, 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.
Crude prices jumped last Monday after OPEC+ on June 4 agreed to maintain its crude production levels. However, Saudi Arabia said it will voluntarily cut its crude output by 1 million bpd starting in July, and Saudi Energy Minister Price Abdulaziz bin Salman said he "will do whatever is necessary to bring stability to the oil market." He also said that next month's additional cuts could be extended, but they will keep the market "in suspense" about whether this will happen. OPEC May crude production fell -500,00 bpd to a 16-month low of 28.26 million bpd.
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 in the four weeks to June 4 rose to 3.73 million bpd from a revised 3.68 million bpd in the four-week period to May 28. Crude shipments from Russian ports are +1.4 million bpd higher than at the end of 2022, with most of the crude going to India and China. 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 -4.2% w/w to 101.76 million bbl in the week ended June 9.
Today's weekly EIA report was bearish for crude and its products. EIA crude inventories unexpectedly rose +7.92 million bbl versus expectations of a -1.5 million bbl draw. Also, EIA gasoline supplies rose +2.11 million bbl, above expectations of +1.0 million bbl. In addition, EIA distillate stockpiles rose +2.1 million bbl, above expectations of +1.75 million bbl. Finally, crude supplies at Cushing, the delivery point of WTI futures, rose +1.55 million bbl to a 2-year high.
Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of June 9 were -0.6% below the seasonal 5-year average, (2) gasoline inventories were -7.1% below the seasonal 5-year average, and (3) distillate inventories were -14.5% below the 5-year seasonal average. U.S. crude oil production in the week ended June 9 was unchanged w/w at a 3-year high of 12.4 million bpd, only 0.7 million bpd (-5.3%) 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 9 rose by +1 to 556 rigs. That is well below the 2-1/2 year high of 627 rigs posted on December 2 and just above the prior week's 13-month low of 555 rigs. 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.
