Sep WTI crude oil (CLU24) on Wednesday closed up +3.18 (+4.26%), and Sep RBOB gasoline (RBU24) closed up +9.82 (+4.19%).
Crude oil prices Wednesday rallied sharply. Wednesday's fall in the dollar index (DXY00) to a 1-1/2 week low was bullish for energy prices. Crude is also climbing on increased geopolitical tensions in the Middle East that could lead to a disruption of the region's crude supplies after Israel launched an airstrike in Iran that killed a Hamas leader and an airstrike in Beirut that killed a Hezbollah leader. Iranian Supreme leader Ayatollah Ali Khamenei said he had a "duty to seek vengeance" and that Israel should prepare for "severe punishment." Crude prices extended their gains after weekly EIA crude inventories fell more than expected to a 5-3/4 month low.
Wednesday's global economic news mixed for energy demand and crude prices. On the positive side, US Jun pending home sales rose +4.8% m/m, stronger than expectations of +1.5% m/m and the biggest increase in 6 months. Also, Japan Jun retail sales rose +0.6% m/m and +3.7% y/y, stronger than expectations of +0.2% m/m and +3.2% y/y. On the negative side, the US Jul ADP employment change rose +122,000, weaker than expectations of +150,000 and the smallest increase in 6 months. Also, the BOJ cut its 2024 Japan GDP forecast to 0.6% from 0.8%
Crude oil prices have underlying support from the Hamas-Israel conflict. Israel's military continues to conduct operations in Gaza, and there is the continued 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.
An increase in crude oil held worldwide on tankers is bearish for prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least 7 days rose by +1.1% to 78.45 million bbl in the week ended July 26.
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 primarily bullish for crude prices. EIA crude inventories fell -3.44 million bbl to a 5-3/4 month low, a larger draw than expectations of -1.1 million bbl. Also, EIA gasoline supplies fell -3.67 million bbl to a 7-3/4 month low, a larger draw than expectations of -1.29 million bbl. In addition, crude stockpiles at Cushing, the delivery point of WTI futures, fell by -1.11 million bbl to a 5-month low. On the negative side, EIA distillate inventories unexpectedly rose +1.5 million bbl versus expectations of a -90,000 bbl draw.
Wednesday's EIA report showed that (1) US crude oil inventories as of July 26 were -4.4% below the seasonal 5-year average, (2) gasoline inventories were -3.3% below the seasonal 5-year average, and (3) distillate inventories were -6.6% below the 5-year seasonal average. US crude oil production in the week ending July 26 was unchanged w/w and matched a record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ending July 26 rose by +5 rigs to 482 rigs, recovering modestly from 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.
