August WTI crude oil (CLQ24) on Wednesday closed up +1.07 (+1.29%), and Aug RBOB gasoline (RBQ24) closed up +2.79 (+1.08%).
Crude oil and gasoline prices Wednesday moved higher after the dollar index (DXY00) fell to a 3-week low. Crude added to its gains Wednesday after the weekly EIA report showed crude inventories fell more than expected, and US gasoline demand climbed to a 7-1/2 month high. Crude prices fell back briefly Wednesday on US economic concerns after weekly continuing unemployment claims rose to a 2-1/2 year high, and the Jun ISM services index contracted at the steepest pace in 4 years.
Crude oil has support on the concern that a stronger-than-expected US hurricane season could lead to reduced US crude output, which is supporting prices after Hurricane Beryl strengthened to a Category 5 hurricane, the strongest storm to ever form in the Atlantic this early in the year.
Wednesday's US economic news was weaker than expected and bearish for energy demand and crude prices. US weekly continuing claims rose +26,000 to a 2-1/2 year high of 1.858 million, showing a weaker labor market than expectations of 1.840 million. Also, May factory orders unexpectedly fell -0.5% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 4 months. In addition, the Jun ISM services index fell -5.0 to 48.8, weaker than expectations of 52.7 and the steepest pace of contraction in 4 years.
Crude oil prices have underlying support from concern about the escalation of the Hamas-Israel conflict. Israel's military continues to conduct operations in Gaza, and there is also concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran as hostilities escalate between Israel and Hezbollah. 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.
Higher than-expected Russian crude output and exports are bearish for oil prices. Russian crude production averaged 9.39 million bpd in May, which was +3.8% above its agreed target of 9.049 million bpd. Also, Russian fuel exports in the week to June 30 rose by +620,000 bpd to 3.67 million bpd, the most in two months.
A decline in crude oil 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 -24% w/w to 73.29 million bbl as of June 28.
OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies. OPEC+, on June 2, 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.
A decrease in OPEC crude output is positive for oil prices. OPEC June crude production fell -80,000 bpd to 26.98 million bpd.
Wednesday's weekly EIA report was mainly bullish for crude prices. EIA crude inventories sank -12.16 million bbl, more than expectations of -1.0 million bbl. Also, EIA gasoline supplies fell -2.21 million bbl. a larger draw than expectations of -1.0 million bbl, as US gasoline demand in the week ended Jun 28 rose +5.1% w/w to 9.424 million bpd, a 7-1/2 month high. In addition, EIA distillate stockpiles fell -1.5 million bbl, a steeper decline than expectations of -800,000 bbl. On the positive side, crude supplies at Cushing, the delivery point for WTI futures, rose +345,000 bbl.
Wednesday's EIA report showed that (1) US crude oil inventories as of June 28 were -3.8% below the seasonal 5-year average, (2) gasoline inventories were -0.8% below the seasonal 5-year average, and (3) distillate inventories were -9.6% below the 5-year seasonal average. US crude oil production in the week ending June 28 was unchanged w/w at 13.2 million bpd, just below the recent record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ending June 28 fell -6 rigs to a 2-1/2 year low of 479 rigs. 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.
