October WTI crude oil (CLV23) this morning is up +0.25 (+0.31%), and Oct RBOB gasoline (RBV23) is up +2.65 (+1.04%).
Crude oil and gasoline prices this morning are moderately higher, with crude climbing to a 2-week high. A slump in the dollar index (DXY00) today to a 2-week low is bullish for energy prices. Crude jumped to its high after weekly EIA crude inventories fell more than expected to an 8-month low. Gains in crude are limited after weaker-than-expected U.S. economic news today raised concerns that the U.S. economy was slowing, a bearish factor for energy demand.
Today's U.S. economic news signals weakness in the economy that is negative for energy demand and crude prices. The Aug ADP employment change rose +177,000, weaker than expectations of +195,000 and the smallest increase in 5 months. Also, Q2 GDP was revised downward to 2.1% (q/q annualized) from 2.4%. On the positive side, July pending home sales unexpectedly rose +0.9% m/m, stronger than expectations of a -1.0% m/m decline.
Weakness in the crude crack spread is bearish for crude prices. The crack spread fell to a 1-1/2 month low today, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.
A bearish factor for crude was a Bloomberg report that said the Biden administration is in talks with Venezuela to explore a temporary lifting of U.S. sanctions against Venezuela in exchange for allowing fair elections next year. Lifting U.S. sanctions would allow crude exports from Venezuela into the global market, boosting supplies.
An increase in Iranian crude exports is boosting global supplies and is bearish for oil prices. According to TankerTrackers.com, which provides data on oil cargo shipments to governments, Iranian crude exports rose to a 5-year high of 2.2 million bpd during the first 20 days of August, with most of the crude going to China.
A negative factor for crude prices is the progress made in Iran-U.S. relations that could lead to higher crude exports from Iran after Iran said the recent deal with the U.S. on the release of prisoners and frozen Iranian funds could lead to diplomacy in other areas, including its nuclear program. An agreement on Iran's nuclear program could prompt the U.S. and its allies to remove sanctions on Iranian crude exports, boosting global crude supplies.
In a bearish factor, China's July crude imports fell -19% m/m to 10.33 million bpd, the smallest volume in 6 months. Also, Vortexa said China's onshore crude inventories have expanded to a record 1.02 billion bbl as of July 27.
A decline in crude demand in India, the world's third-biggest crude consumer, is bearish for oil prices. India's July crude oil imports fell -6.3% y/y to 19.3 MMT, the lowest in 8 months.
Crude has support from concerns that Ukraine could retaliate against Russian ships in the Black Sea if Russia continued to block Ukrainian ports. Ukrainian drones on Aug 6 attacked a Russian oil tanker in the Black Sea, a route that accounts for 20% of the oil that Russia sells daily on global markets.
Crude prices have carryover support from earlier this month when Saudi Arabia and Russia said they would extend their crude production cuts. Saudi Arabia said it will extend its 1 million bpd cut in crude production into September and said its crude output may "be extended, or extended and deepened." The cut in Saudi production keeps its crude output at about 9 million bpd, the lowest level in several years. Meanwhile, Russian Deputy Prime Minister Novak said Russia "will continue to voluntarily reduce its oil supply in September by 300,000 bpd" to balance the market. Russia cut its crude output by 500,000 bpd in August.
OPEC crude production in July fell -900,000 bpd to a 1-3/4 year low of 27.79 million bpd.
A bullish factor for crude oil is a decline in Russian crude shipments. Vessel-tracking data monitored by Bloomberg showed Russian crude oil shipments in the four weeks to Aug 18 dropped to 2.29 million bpd, the lowest daily average in ten months.
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 -23% w/w to 82.34 million bbl as of Aug 25.
Today's weekly EIA report was mixed for crude. On the negative side, EIA gasoline supplies fell -214,000 bbl, a smaller draw than expectations of -1.25 million bbl. Also, EIA distillate stockpiles unexpectedly rose +1.2 million bbl versus expectations of a -1.0 million bbl draw. On the positive side, EIA crude inventories fell -10.58 million bbl to an 8-month low, a bigger draw than expectations of -2.19 million bbl. Also, crude supplies at Cushing, the delivery point of WTI futures, fell -1.5 million bbl to a 7-1/2 month low.
Today's weekly EIA report showed that (1) U.S. crude oil inventories as of Aug 25 were -3.5% below the seasonal 5-year average, (2) gasoline inventories were -5.0% below the seasonal 5-year average, and (3) distillate inventories were -15.2% below the 5-year seasonal average. U.S. crude oil production in the week ended Aug 25 was unchanged w/w at 12.8 million bpd, the most in over three years. U.S. crude oil production is modestly 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 Aug 25 fell by -8 to a 17-month low of 512 rigs. That is well below the 3-1/4 year high of 627 rigs posted on Dec 2, 2022. Still, U.S. active oil rigs are more than triple the 18-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity from pandemic lows.
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.
