August WTI crude oil (CLQ23) this morning is up +2.01 (+2.88%), and Aug RBOB gasoline (RBQ23) is up +6.34 (+2.57%).
Crude oil and gasoline prices this morning are sharply higher, with crude posting a 1-1/2 week high. The outlook for tighter global crude supplies is pushing prices higher after Saudi Arabia and Russia announced Monday that they would cut their crude production.
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. Also, Russia pledged Monday that it would voluntarily cut 500,000 bpd of crude output in August.
Comments today from Saudi Energy Minister Price Abdulaziz bin Salman were bullish for oil prices when he said he would do "whatever is necessary" to keep the oil market stable and that Russia's pledge to cut crude production is meaningful because it applies to oil exports.
On the negative side of crude prices is today's weaker-than-expected global economic news that is negative for energy demand. U.S. May factory orders rose +0.3% m/m, weaker than expectations of +0.8% m/m. Also, the China Caixin Jun services PMI fell -3.2 to a 5-month low of 53.9, weaker than expectations of 56.2. In addition, the Eurozone S&P Jun composite PMI was revised lower by -0.4 to 49.9 from the initially reported 50.3, the steepest pace of contraction in 6 months.
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.
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 on Monday 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.
