July WTI crude oil (CLN24) on Monday closed up +2.21 (+2.93%), and July RBOB gasoline (RBN24) closed up +2.83 (+1.19%).
Crude oil and gasoline prices rallied to 1-week highs Monday and closed moderately higher. Crude oil prices found support Monday from news of increased global air travel and fuel demand after Bloomberg NEF said a record 10.5 million flights are scheduled in Q3. Crude also has carryover support from last Thursday when Saudi Arabia Energy Minister Prince Abdulaziz bin Salman said OPEC+ could pause or reverse its decision to boost crude production if prices falter. Monday's rally in the dollar index (DXY00) to a 3-1/2 week high is bearish for energy prices.
Monday's global economic news is mixed for energy demand and crude prices. On the positive side, the Eurozone Jun Sentix investor confidence index rose +3.9 to a 2-1/4 year high of 0.3, stronger than expectations of -1.7. Also, Japan's Q1 GDP was revised upward by +0.2 to -1.8% (q/q annualized) from the previously reported -2.0%. Conversely, Italy's Apr industrial production unexpectedly fell -1.0% m/m, weaker than expectations of +0.2% m/m. Also, the Japan May eco-watchers outlook survey unexpectedly fell -2.2 to a 1-3/4 year low of 46.3, weaker than expectations of an increase to 49.0.
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 -19% w/w to 75.59 million bbl as of June 7.
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.
Higher than-expected Russian crude output is bearish for oil prices. Russian crude production averaged 9.39 million bpd in May, more than +344,000 bpd above its agreed target of 9.049 million bpd. Russia's fuel exports are steady as refineries come back online after being damaged by Ukrainian drone attacks. Russian fuel exports in the week to June 2 were unchanged from the prior week at 3.22 million bpd.
Last Wednesday's EIA report showed that (1) US crude oil inventories as of May 31 were -3.9% below the seasonal 5-year average, (2) gasoline inventories were -0.7% below the seasonal 5-year average, and (3) distillate inventories were -6.8% below the 5-year seasonal average. US crude oil production in the week ending May 31 was unchanged w/w at 13.1 million bpd, slightly below the recent record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ended June 7 fell -4 rigs to a 2-1/4 year low of 492 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.
