Sep WTI crude oil (CLU24) on Friday closed down -2.79 (-3.66%), and Sep RBOB gasoline (RBU24) closed down -8.04 (-3.35%).
Crude oil and gasoline prices Friday plummeted to 2-month lows and closed sharply lower on concerns about US energy demand. Friday's US economic reports on Jul nonfarm payrolls and Jun factory orders were weaker than expected, showing the US economy is losing momentum. Also, Friday's selloff in the S&P 500 to an 8-week low undercuts confidence in the economic outlook and energy demand and is bearish for crude prices. Crude prices tumbled Friday despite the dollar index (DXY00) sinking to a 4-1/2 month low.
Friday's US economic news was bearish for energy demand and crude prices. Jul nonfarm payrolls rose +114,000, weaker than expectations of +175,000, and Jun nonfarm payrolls were revised lower to +179,000 from the previously reported +206,000. Also, the Jul unemployment rate unexpectedly rose +0.2 to a 2-3/4 year high of 4.3%, showing a weaker labor market than expectations of 4.1%. In addition, Jun factory orders fell -3.3% m/m, weaker than expectations of -3.2% m/m and the largest decline in 4 years.
The escalation of geopolitical tensions in the Middle East could lead to a disruption of the region's crude supplies, which is supportive of crude prices. Iran's Supreme leader Ayatollah Ali Khamenei said Wednesday that Iran plans to retaliate against Israel for killing a Hamas leader in Tehran.
Crude oil prices have underlying support from the Hamas-Israel conflict. Israel's military continues to conduct operations in Gaza, and there is the continued risk that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran. 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.
An increase in crude oil held worldwide on tankers is bearish for prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days rose by +1.1% to 78.45 million bbl in the week ended July 26.
OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies. On June 2, OPEC+ 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. In June, OPEC crude production fell -80,000 bpd to 26.98 million bpd.
Wednesday's EIA report showed that (1) US crude oil inventories as of July 26 were -4.4% below the seasonal 5-year average, (2) gasoline inventories were -3.3% below the seasonal 5-year average, and (3) distillate inventories were -6.6% below the 5-year seasonal average. US crude oil production in the week ending July 26 was unchanged w/w and matched a record high of 13.3 million bpd.
Baker Hughes reported Friday that active US oil rigs in the week ending August 2 were unchanged at 482 rigs, modestly above the 2-1/2 year low of 477 rigs posted in the week ending July 19. 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.
