September WTI crude oil (CLU23) this morning is up +1.23 (+1.56%), and Sep RBOB gasoline (RBU23) is up +1.99 (+0.70%).
Crude oil and gasoline prices this morning are moderately higher, with crude posting a 3-1/4 month high and gasoline posting a 9-month high. Signs of U.S. economic strength that is bullish for energy demand is pushing crude prices higher after today's U.S. news showed Q2 GDP grew more than expected and weekly jobless claims unexpectedly fell to a 5-month low. A rally in the dollar index today to a 2-week high limits energy price gains.
Today's U.S economic news was stronger than expected and supportive of energy demand and crude prices. Q2 GDP rose +2.4% (q/q annualized), stronger than expectations of +1.8%. Also, weekly initial unemployment claims unexpectedly fell -7,000 to a 5-month low of 221,000, showing a stronger labor market than expectations of an increase to 235,000. In addition, Jun pending home sales unexpectedly rose +0.3% m/m, stronger than expectations of a -0.5% m/m decline. Finally, Jun capital goods new orders nondefense ex-aircraft and parts unexpectedly rose +0.2% m/m, stronger than expectations of a -0.1% m/m decline.
Strength in the crude cracks spread supports oil prices as the spread climbed to a 4-month high today. The stronger crack spread encourages refiners to boost their crude purchases and refine the crude into gasoline and distillates.
Crude prices have support on signs China will implement policies to revive economic growth. This week’s Politburo meeting laid out a pre-growth tone that was more dovish than markets expected. The ruling Communist Party’s 24-member Politburo, China’s top decision-making body led by President Xi Jinping, promised “counter-cyclical” policies, which imply an easing bias.
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.
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 July 16 dropped to a 6-month low of 3.1 million bpd.
In a supportive factor for oil prices, Saudi Arabia earlier this month said it would extend its unilateral 1 million bpd production cut through August, keeping Saudi Arabia's crude output at about 9 million bpd, the lowest level in several years. Also, Russia voluntarily pledged to cut 500,000 bpd of crude output in August. However, Russia has yet to implement its pledged crude production cuts fully. Russian crude production cuts totaled 350,000 bpd in June, below the 500,000 bpd of cuts it said it would implement in March. Meanwhile, OPEC crude production in June rose +80,000 bpd to 28.57 million bpd.
A decline in crude in floating storage is bullish for prices. Monday's weekly data from Vortexa shows the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -2.2% w/w to 106.95 million bbl as of July 21.
An improvement in Chinese crude demand is bullish for prices after government trade data showed China's June crude imports rose +4.6% m/m to 12.72 million bpd, the most in three years.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of July 21 were +1.6% above the seasonal 5-year average, (2) gasoline inventories were -7.4% below the seasonal 5-year average, and (3) distillate inventories were -14.4% below the 5-year seasonal average. U.S. crude oil production in the week ended July 21 fell -0.8% w/w to 12.2 million bpd. U.S. crude oil production is well 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 July 21 fell by -7 rigs to a 16-month low of 530 rigs. That is well below the 3-1/4 year high of 627 rigs posted on December 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.
