August WTI crude oil (CLQ24) on Wednesday closed up +2.09 (+2.59%), and Aug RBOB gasoline (RBQ24) closed up +2.38 (+0.96%).
Crude oil and gasoline prices Wednesday settled moderately higher. Wednesday's slump in the dollar index (DXY00) to a 3-3/4 month low is bullish for energy prices. Gains in crude accelerated Wednesday after weekly EIA crude inventories fell more than expected to a 5-month low. However, demand concerns limited gasoline gains after weekly EIA gasoline stockpiles unexpectedly increased.
Wednesday's US economic news was supportive of energy demand and crude prices. Jun housing starts rose +3.0% m/m to 1.353 million, stronger than expectations of 1.300 million. Also, Jun building permits, a proxy for future construction, rose +3.4% m/m to 1.446 million, stronger than expectations of 1.400 million. In addition, Jun manufacturing production rose +0.4% m/m, stronger than expectations of +0.1% m/m.
Weakness in the crude crack spread is bearish for crude prices. Wednesday's crack spread fell to a 6-month low, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.
In a bearish factor, Russia's crude exports in the week to July 14 rose by +200,000 bpd to 2.97 million bpd, according to vessel-tracking data compiled by Bloomberg. Also, higher-than-expected Russian crude output is bearish for oil prices. Russian crude production averaged 9.078 million bpd in June, above its agreed target of 9.049 million bpd.
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.
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 -20% w/w to 74.53 million bbl as of July 12.
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.
A decrease in OPEC crude output is positive for oil prices. OPEC's June crude production fell -80,000 bpd to 26.98 million bpd.
Wednesday's weekly EIA report was mixed for crude prices. On the positive side, EIA crude inventories fell -4.87 million bbl to a 5-month low, a larger draw than expectations of -1.08 million bbl. Also, crude supplies at Cushing, the delivery point for WTI futures, fell by -875,000 bbl. On the negative side, EIA gasoline supplies unexpectedly rose +3.3 million bbl versus expectations of a -1.23 million bbl draw. Also, EIA distillate stockpiles rose +3.45 million bbl, well above expectations of a +200,000 bbl increase.
Wednesday's EIA report showed that (1) US crude oil inventories as of July 12 were -4.7% below the seasonal 5-year average, (2) gasoline inventories were +0.03% above the seasonal 5-year average, and (3) distillate inventories were -6.7% below the 5-year seasonal average. US crude oil production in the week ending July 12 was unchanged w/w and matched a record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ending July 12 fell -1 rig to a 2-1/2 year low of 478 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.
