September WTI crude oil (CLU23) on Thursday closed up +1.01 (+1.27%), and Sep RBOB gasoline (RBU23) closed down -4.54 (-1.58%).
Crude oil and gasoline prices on Thursday settled mixed. Crude moved higher on carryover support from Wednesday's EIA report that showed U.S crude inventories fell to their lowest in 8 months. Crude also garnered support from Thursday's better-than-expected U.S. economic news, which shows strength in the economy that supports energy demand. Crude prices fell back from their best levels Thursday after the dollar index (DXY00) rallied to a 2-month high. Also, concerns about China's economy limited the upside in crude prices.
Thursday’s stronger-than-expected U.S. economic news is a supportive factor for fuel demand and crude prices. Weekly initial unemployment claims fell -9,000 to 239,000, showing a slightly stronger labor market than expectations of 240,000. Also, the Aug Philadelphia Fed business outlook survey rose +25.5 to a 16-month high of 12.0, stronger than expectations of -10.4.
A negative factor for crude prices is the progress made in Iran-U.S. relations that could lead to higher crude exports from Iran after Iran said last week's deal with the U.S. on the release of prisoners and frozen Iranian funds could lead to diplomacy in other areas, including its nuclear program. An agreement on Iran's nuclear program could prompt the U.S. and its allies to remove sanctions on Iranian crude exports, boosting global crude supplies.
In a bearish factor, China's July crude imports fell -19% m/m to 10.33 million bpd, the smallest volume in 6 months. Also, Vortexa said China's onshore crude inventories have expanded to a record 1.02 billion bbl as of Jul 27.
A decline in crude demand in India, the world's third-biggest crude consumer, is bearish for oil prices. India's Jun crude oil imports fell -1.3% y/y to 19.7 MMT, the lowest in 7 months.
Crude has support on last Tuesday's comments from Ukraine President Zelensky, who said his country would retaliate against Russian ships in the Black Sea if Russia continued to block Ukrainian ports. Ukrainian drones on Aug 6 attacked a Russian oil tanker in the Black Sea, a route that accounts for 20% of the oil that Russia sells daily on global markets.
Crude prices have carryover support from earlier this month when Saudi Arabia and Russia said they would extend their crude production cuts. Saudi Arabia said it will extend its 1 million bpd cut in crude production into September and said its crude output may "be extended, or extended and deepened." The cut in Saudi production keeps its crude output at about 9 million bpd, the lowest level in several years. Meanwhile, Russian Deputy Prime Minister Novak said Russia "will continue to voluntarily reduce its oil supply in September by 300,000 bpd" to balance the market. Russia cut its crude output by 500,000 bpd in August.
OPEC crude production in July fell -900,000 bpd to a 1-3/4 year low of 27.79 million bpd.
A bullish factor for crude oil is a decline in Russian crude shipments. Vessel-tracking data monitored by Bloomberg showed Russian crude oil shipments in the four weeks to Aug 6 dropped to 3.02 million bpd, about 870,000 bpd below the peak in mid-May.
A decline in crude 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 -4.2% w/w to 99.67 million bbl as of Aug 11.
Wednesday's weekly EIA report showed that (1) U.S. crude oil inventories as of Aug 11 were -1.5% below the seasonal 5-year average, (2) gasoline inventories were -6.6% below the seasonal 5-year average, and (3) distillate inventories were -16.7% below the 5-year seasonal average. U.S. crude oil production in the week ended Aug 11 rose +0.8% w/w to 12.7 million bpd, the most in over three years. U.S. crude oil production is modestly 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 Aug 11 were unchanged at a 17-month low of 525 rigs. That is well below the 3-1/4 year high of 627 rigs posted on Dec 2, 2022. Still, U.S. active oil rigs are more than triple the 18-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity from pandemic lows.
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.
