August WTI crude oil (CLQ23) this morning is down -0.09 (-0.12%), and Aug RBOB gasoline (RBQ23) is up +0.30 (+0.12%).
Crude oil and gasoline prices this morning are mixed. Concerns that a slowdown in China's economy will crimp its energy demand are weighing on crude prices today. Also, comments from U.S. Treasury Secretary Yellen undercut crude prices when she said the risk of a U.S. recession isn't "off the table." A bullish factor for energy prices is today's fall in the dollar index (DXY00) to a 2-week low.
Crude prices are under pressure on today's price reports from China that were weaker than expected, bolstering deflation concerns that are negative for economic growth and energy demand. China Jun CPI was unchanged y/y, weaker than expectations of +0.2% y/y, and the weakest rate in 2-1/3 years. Also, Jun PPI fell -5.4% y/y, weaker than expectations of -5.0% y/y and the steepest pace of decline in 7-1/2 years.
Comments on Sunday from U.S. Secretary Yellen were bearish for crude prices when she said inflation remains too high and the risk of recession in the U.S. is "not completely off the table."
A bullish factor for crude prices was last Friday's announcement from the Biden administration that the U.S. is purchasing 6 million more barrels of crude oil for the Strategic Petroleum Reserve, scheduled for October and November.
In a supportive factor for oil prices, Saudi Arabia last week 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 last Monday that it would voluntarily cut 500,000 bpd of crude output in August.
On the negative side, Russia has yet to fully implement its pledged crude production cuts. Russian crude production cuts totaled 350,000 bpd in June, below the 500,000 bpd of cuts it said it would implement in March.
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.
An increase in crude in floating storage is bearish for prices. Today's weekly data from Vortexa shows the amount of crude oil held worldwide on tankers that have been stationary for at least a week rose +5.5% w/w to 112.07 million bbl as of July 7.
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 30 were -1.5% below the seasonal 5-year average, (2) gasoline inventories were -7.6% below the seasonal 5-year average, and (3) distillate inventories were -15.0% below the 5-year seasonal average. U.S. crude oil production in the week ended June 30 rose +1.6% w/w to 12.4 million bpd, matching 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 30 fell by -5 rigs to a 15-month low of 540 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.
