July WTI crude oil (CLN24) Thursday closed up +0.60 (+0.74%), and July RBOB gasoline (RBN24) closed up +1.76 (+0.71%).
Crude oil and gasoline prices closed moderately higher on Thursday, with crude posting a 7-week high and gasoline posting a 3-week high. Thursday's rally in the S&P 500 to a new all-time high showed confidence in the economic outlook, which supported energy demand and crude prices. Crude and gasoline extended their gains on a bullish weekly EIA report that showed US gasoline demand rose to a 7-month high. Thursday's stronger dollar and weaker-than-expected US economic reports were negative factors for energy prices.
Thursday's US economic news was weaker than expected and bearish for energy demand and oil prices. Weekly initial unemployment claims fell -5,000 to 238,000, signaling a weaker labor market than expectations of 235,000. Also, May housing starts unexpectedly fell -5.5% m/m to a 4-year low of 1.277 million, weaker than expectations of an increase to 1.370 million. In addition, the Jun Philadelphia Fed business outlook survey unexpectedly fell -3.2 to a 5-month low of 1.5, weaker than expectations of an increase to 5.0.
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 -12% w/w to 78.66 million bbl as of June 14.
Crude has carryover support from last Thursday when after Russia's Energy Ministry pledged to cut daily crude production this month by 971,000 bpd from the baseline of 9.949 million bbl. In April and May, Russia over-produced relative to its OPEC+ target, but it said it plans to comply strictly with its quota beginning this month.
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. Russia's fuel exports have also increased as refineries come back online after being damaged by Ukrainian drone attacks. Russian fuel exports in the week to June 16 rose by +5% to a 2-month high of 3.7 million bpd.
OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies. OPEC+ agreed on June 2 to extend the 2 million bpd of voluntary crude production cuts into Q3 but then 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.
An increase in OPEC crude output is negative for oil prices. OPEC May crude production rose +60,000 bpd to 26.96 million bpd, a 5-month high.
Crude oil prices have underlying support from concern about the Hamas-Israel conflict. Israel's military is conducting military operations in the southern Gaza city of Rafah despite opposition from the Biden administration. There is also concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran. Meanwhile, 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.
Thursday's weekly EIA report was mainly supportive of crude prices. EIA crude inventories fell -2.55 million bbl, close to expectations of -2.6 million bbl. EIA gasoline supplies unexpectedly fell -2.28 million bbl versus expectations of a +1.1 million bbl build as gasoline demand for the week of June 14 rose +3.8% w/w to a 7-month high of 9.386 million bpd. In addition, EIA distillate stockpiles unexpectedly fell -1.7 million bbl versus expectations of a +1.0 million bbl build. On the bearish side, crude supplies at Cushing, the delivery point of WTI futures, rose +307,000 bbl.
Thursday's EIA report showed that (1) US crude oil inventories as of June 14 were -3.6% below the seasonal 5-year average, (2) gasoline inventories were -1.5% below the seasonal 5-year average, and (3) distillate inventories were -8.2% below the 5-year seasonal average. US crude oil production in the week ending June 14 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 14 fell -4 to a 2-1/3 year low of 488 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.
