Oct WTI crude oil (CLV24) Wednesday closed down -1.24 (-1.69%), and Oct RBOB gasoline (RBV24) closed down -3.22 (-1.55%).
Crude oil and gasoline prices Wednesday gave up early gains and tumbled to 6-1/2 month lows. US energy demand concerns are undercutting crude prices after the US Bureau of Labor Statistics (BLS) revised US payrolls down more than expected. Also, hopes for a cease-fire deal between Israel and Hamas are taking some risk premium out of crude prices. Crude prices sold off Wednesday despite a fall in the dollar index (DXY00) to a 7-1/2 month low, and after weekly EIA crude inventories fell more than expected to a 6-1/2 month low.
Signs of a weaker US labor market are bearish for energy demand and crude prices after the BLS revised US payrolls down by -818,000 for the year through March, a bigger decline than expectations of -600,000 and the largest downward revision since 2009, signaling a weaker labor market than was originally reported.
Weakness in the crude crack spread is bearish for crude prices as the crack spread sank to a 2-3/4 year low Wednesday, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.
Concern about energy demand in China, the world's second-largest crude consumer, is bearish for oil prices. China's steel production in July fell -9% y/y to 82.94 MMT, the lowest this year, which signals weak industrial and building demand and weakness in China's economy.
Signs of weaker US gasoline demand have prompted several US refiners to reduce refining operations, a bearish factor for crude prices. Marathon Petroleum, the owner of the largest US refinery, said it plans to cut its refining capacity rate to 90% this quarter, the lowest for a Q3 since 2020. Also, PBF Energy said it was cutting its refining capacity utilization rate to a three-year low, and Phillips 66 said it would cut its capacity rate to a two-year low.
Crude prices have support from fears of an attack by Iran against Israel in response to last month's assassination of a Hamas leader by Israel in Iran, which could escalate the conflict in the Middle East and disrupt the region's crude oil supplies. Israel's military continues to conduct operations in Gaza, and there is the 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.
Increased Russian crude production is negative for oil prices after Russia's Energy Ministry reported last Friday that Russia's July crude production was 9.045 million bpd, about 67,000 bpd above the output target it agreed to with OPEC+.
A decline in crude oil held worldwide on tankers is bullish for prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days fell by -4.1% w/w to 66.26 million bbl in the week ended August 16.
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. In June, OPEC crude production fell -80,000 bpd to 26.98 million bpd.
Wednesday's weekly EIA report was mixed for crude and its products. On the negative side, EIA gasoline stockpiles fell -1.6 million bbl, a smaller draw than expectations of -1.8 million bbl. Also, US crude production in the week ended August 16 rose +0.8% w/w to a record 13.4 million bpd. On the bullish side, EIA crude inventories fell by -4.65 million bbl to a 6-1/2 month low, a larger draw than expectations of -2.2 million bbl. Also, EIA distillate supplies fell -3.3 million bbl, a larger draw than expectations of -1.0million bbl. In addition, crude inventories at Cushing, the delivery point for WTI futures, fell by -560,000 bbl.
Wednesday's EIA report showed that (1) US crude oil inventories as of August 16 were -5.0% below the seasonal 5-year average, (2) gasoline inventories were -3.2% below the seasonal 5-year average, and (3) distillate inventories were -10.0% below the 5-year seasonal average. US crude oil production in the week ending August 16 rose +0.8% w/w to match the record high of 13.4 million bpd from the week of August 2.
Baker Hughes reported last Friday that active US oil rigs in the week ending August 16 fell -2 to 483 rigs, modestly above the 2-1/2 year low of 477 rigs posted in the week ending July 19. 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.
