June WTI crude oil (CLM23) on Tuesday closed down -0.25 (-0.35%), and June RBOB gasoline (RBM23) closed up +0.71 (+0.29%).
Crude oil and gasoline prices Tuesday settled mixed. A stronger dollar Tuesday weighed on crude prices. Also, weaker-than-expected Chinese economic news Tuesday suggested the Chinese economic recovery is wavering, a bearish factor for crude demand and prices. Better-than-expected U.S. economic reports limited losses in crude and boosted gasoline prices.
Crude prices dropped nearly -30 cents/bbl from their Tuesday afternoon closing level after the API reported that U.S. crude supplies rose +3.69 million bbl last week. The consensus is that Wednesday's weekly EIA crude inventories will fall by -2.0 million bbl.
Weaker-than-expected Chinese economic reports Tuesday signaled weakness in China's recovery. China's Apr industrial production rose +5.6% y/y, the biggest increase in 7 months but weaker than expectations of +10.9% y/y. Also, China's Apr retail sales rose +18.4% y/y, the biggest increase in 2 years but still weaker than expectations of +21.4% y/y.
U.S. economic news Tuesday was mostly better than expected and supportive of energy demand and crude prices. Apr manufacturing production rose +1.0% m/m, stronger than expectations of +0.1% m/m. Also, the May NAHB housing market index unexpectedly rose +5 to a 10-month high of 50, stronger than expectations of no change at 45. In addition, Apr retail sales ex-autos rose +0.4% m/m, right on expectations.
Crude prices also have support on crude buying by the government to refill the Strategic Petroleum Reserve (SPR). The Energy Department announced late Monday that it is soliciting bids for up to 3 million bbl of sour crude to refill the SPR with deliveries in August and that it plans to purchase more oil later this year.
The outlook for stronger U.S. fuel demand is bullish for crude prices. AAA is forecasting that as many as 42.3 million Americans will travel 50 miles or more from home this Memorial Day weekend, up +7% y/y and the highest for a Memorial Day weekend since 2005.
Crude has support on reduced Canadian crude output after wildfires in Alberta halted about 145,000 bpd of crude production from several Canadian crude producers. Extreme heat in western Canada sparked additional wildfires over the weekend, with 87 active wildfires in Alberta as of Tuesday morning, with 24 still considered out of control.
In a bearish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week rose +9% w/w to 86.69 million bbl in the week ended May 12.
The ongoing halt of Iraqi crude exports from the Turkish port of Ceyhan is tightening global oil supplies and is bullish for crude prices. The Turkish government said it wants to negotiate a $1.5 billion settlement that it has been ordered to pay before allowing Iraqi crude exports to resume through its pipeline. Oil exports of 500,000 bpd from the Turkish port of Ceyhan have been halted since March 25 after Iraq won an arbitration case from the International Chamber of Commerce that said Turkey violated a 1973 pipeline transit agreement by allowing crude from the Kurdish region to be exported without Iraqi government consent.
Crude oil prices are being undercut by signs that Russia has not delivered on its threat to cut crude output. Tanker-tracking data from Bloomberg shows Russia's crude exports jumped above 4 million bpd in the week of April 28. Russia has halted the publication of crude and condensate production data in an attempt to disguise if it has actually cut crude output.
Crude prices surged on April 3 after OPEC+ announced a surprise oil production cut of more than 1 million bpd starting May 1. Saudi Arabia said the cuts were a "precautionary measure aimed at supporting the stability of the oil market." OPEC Mar crude production fell by -80,000 bpd to 29.16 million bpd.
Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of May 5 were -1.2% below the seasonal 5-year average, (2) gasoline inventories were -6.8% below the seasonal 5-year average, and (3) distillate inventories were -16.1% below the 5-year seasonal average. U.S. crude oil production in the week ended May 5 was unchanged w/w to 12.3 million bpd, only 0.8 million bpd (-6.1%) 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 May 12 fell by -2 to an 11-month low of 586 rigs, falling further below the 2-1/2 year high of 627 rigs posted on December 2. U.S. active oil rigs have more than tripled from the 17-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.
