September WTI crude oil (CLU23) on Tuesday closed down -0.43 (-0.53%), and Sep RBOB gasoline (RBU23) closed down -2.25 (-0.78%).
Crude oil and gasoline prices Tuesday settled moderately lower. Tuesday's rally in the dollar index to a 3-week high weighed on energy prices. Also, Tuesday's slide in stock prices prompted a risk-off sentiment in asset markets that undercut crude prices.
Tuesday's U.S. and Chinese manufacturing news was weaker-than-expected and was bearish for energy demand and crude prices. The U.S. Jul ISM manufacturing index rose +0.4 to 46.4, weaker than expectations of 46.9. Also, the China Jul Caixin manufacturing PMI fell -1.3 to a 6-month low of 49.2, weaker than expectations of 50.1.
Crude oil prices have support from hopes China will implement policies to revive economic growth. Last 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 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 30 dropped to a 7-month low of 2.98 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 showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -2.2% w/w to 105.06 million bbl as of July 28.
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.
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.
The consensus is that Wednesday's weekly EIA crude inventories will fall -1.05 million bbl.
Last Wednesday's weekly 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 28 fell by -1 rig to a 16-1/2 month low of 529 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.
