August WTI crude oil (CLQ23) on Monday closed -0.85 (-1.20%), and Aug RBOB gasoline (RBQ23) closed down -8.25 (-3.24%).
Crude oil and gasoline prices Monday gave up an early rally and closed moderately lower. A stronger dollar Monday weighed on energy prices. Also, energy demand concerns undercut oil prices after U.S. manufacturing activity last month unexpectedly contracted by the most in three years. Crude prices Monday initially climbed to a 1-week high on Monday's action by Saudi Arabia to announce that it would extend its voluntary cut in its crude production through August.
On the negative side of crude prices is a slowdown in manufacturing activity in the U.S. and the Eurozone. Monday’s news showed the U.S. Jun ISM manufacturing index unexpectedly fell -0.9 to 46.0, weaker than expectations of an increase to 47.1 and the steepest pace of contraction in more than three years. Also, the Eurozone Jun S&P manufacturing PMI was revised downward to 43.4 from the initially reported 43.6, the steepest pace of contraction in more than three years.
A bearish factor for crude prices is Monday's projection by Citigroup that U.S. crude production will break the early 2020 record of 13.1 million bpd by year-end, barring an active hurricane season in the Gulf of Mexico.
In a supportive factor for oil prices, Saudi Arabia 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.
Crude prices also have support from Monday's stronger-than-expected Asian economic news that is bullish for energy demand. The China Jun Caixin manufacturing PMI fell -0.4 to 50.5, stronger than expectations of 50.0. Also, the Japan Q2 Tankan large manufacturing business conditions rose to 5, stronger than expectations of 3 and the first increase in seven quarters.
Oil prices continue to be undercut by concern about weaker Chinese energy demand. China's National Petroleum Corp (CNPC), China's largest oil and gas producer, cut its 2023 China crude oil demand forecast on June 20 to +3.5% to 740 MMT from a March forecast of +5.1% to 756 MMT. In another sign of weak Chinese oil demand, analytics firm Kpler recently reported that China's crude oil stockpiles rose to a 2-year high in May of 966 million bbl, well above the five-year average of 858 million bbl.
A decline in crude in floating storage is supportive of prices. Weekly data from Vortexa shows the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -23% w/w to 102.70 million bbl as of June 30.
An increase in OPEC crude production is bearish for oil prices. OPEC Jun crude production rose +80,000 bpd to 28.57 million bpd.
Last Thursday's EIA report showed that (1) U.S. crude oil inventories as of June 23 were -1.4% below the seasonal 5-year average, (2) gasoline inventories were -6.8% below the seasonal 5-year average, and (3) distillate inventories were -14.4% below the 5-year seasonal average. U.S. crude oil production in the week ended June 23 was unchanged at 12.2 million bpd, just mildly below the 3-year high of 12.4 million bpd posted in the week ended June 9. 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 June 23 fell by -6 rigs to a 1-1/4 year low of 546 rigs. That is well below the 3-1/4 year high of 627 rigs posted on December 2, 2022. U.S. active oil rigs have more than tripled from the 18-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity.
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.
