September WTI crude oil (CLU23) this morning is down -1.76 (-2.16%), and Sep RBOB gasoline (RBU23) is down -8.31 (-2.89%).
Crude oil and gasoline prices this morning are moderately lower. Crude prices fell back from a 3-1/2 month high and turned lower after a stock sell-off sparked a risk-off sentiment in asset markets that undercut crude prices. Today's rally in the dollar index (DXY00) to a 3-week high is also bearish for energy prices. Crude prices briefly recovered their losses after weekly EIA crude inventories fell more than expected.
The action by Fitch Ratings to cut the sovereign credit rating of the U.S. by one level to AA+ from AAA sent stocks tumbling Wednesday and sparked a risk-off sentiment in asset prices that is negative for crude prices.
Crude oil prices have support from hopes China will implement policies to revive economic growth. Last week’s Politburo meeting laid out a pre-growth tone that was more dovish than markets expected. The ruling Communist Party’s 24-member Politburo, China’s top decision-making body led by President Xi Jinping, promised “counter-cyclical” policies, which imply an easing bias.
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 July 30 dropped to a 7-month low of 2.98 million bpd.
In a supportive factor for oil prices, Saudi Arabia last month said it would extend its unilateral 1 million bpd production cut through August, keeping Saudi Arabia's crude output at about 9 million bpd, the lowest level in several years. Also, Russia voluntarily pledged to cut 500,000 bpd of crude output in August. Also, OPEC crude production in July fell -900,000 bpd to a 1-3/4 year low of 27.79 million bpd.
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 -2.2% w/w to 105.06 million bbl as of July 28.
An improvement in Chinese crude demand is bullish for prices after government trade data showed China's June crude imports rose +4.6% m/m to 12.72 million bpd, the most in three years.
A decline in crude demand in India, the world's third-biggest crude consumer, is bearish for oil prices. India's Jun crude oil imports fell -1.3% y/y to 19.7 MMT, the lowest in 7 months.
Today's weekly EIA report was mixed for crude prices. On the bearish side, EIA gasoline supplies unexpectedly rose +1.48 million bbl versus expectations of a -1.55 million bbl decline as implied U.S. gasoline demand on a four-week rolling basis fell for a fourth straight week. On the bullish side, EIA crude inventories plunged by a record -17.05 million bbl, a much larger draw than expectations of -1.05 million bbl. Also, EIA distillate stockpiles unexpectedly fell -791,000 bbl versus expectations of a +100,000 bbl build. In addition, crude supplies at Cushing, the delivery point of WTI futures, fell -1.26 million bbl.
Today's weekly EIA report showed that (1) U.S. crude oil inventories as of July 28 were -1.6% below the seasonal 5-year average, (2) gasoline inventories were -6.3% below the seasonal 5-year average, and (3) distillate inventories were -14.6% below the 5-year seasonal average. U.S. crude oil production in the week ended July 28 was unchanged w/w at 12.2 million bpd. U.S. crude oil production is well 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 July 28 fell by -1 rig to a 16-1/2 month low of 529 rigs. That is well below the 3-1/4 year high of 627 rigs posted on December 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.
