August WTI crude oil (CLQ23) this morning is down -0.76 (-1.06%), and Aug RBOB gasoline (RBQ23) is down -0.77 (-0.31%).
Crude oil and gasoline prices this morning gave up early gains and are moderately lower, with crude falling from a 2-week high. A rally in the dollar index (DXY00) today to a 3-week high is undercutting energy prices. Also, today's sell-off in global equity markets has reduced confidence in the economic outlook and sparked aversion to risk assets, such as commodities and stocks. Crude prices remained lower after weekly EIA crude inventories fell less than expected.
In a supportive factor for oil prices, Saudi Arabia this week 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 pledged Monday that it would voluntarily cut 500,000 bpd of crude output in August.
A bullish factor for crude prices was today's action by Saudi Arabia's state-owned Aramco to raise the price of all of its crude grades to customers for delivery in August.
On the negative side of crude prices was today's stronger-than-expected U.S. economic reports on Jun ADP employment and Jun ISM services, which bolsters the outlook for the Fed to keep raising interest rates, which could slow economic growth and energy demand. The Jun ADP employment change surged by +497,000, well above expectations of +225,000 and the most in 16 months. Also, the Jun ISM services index rose +3.6 to a 4-month high of 53.9, stronger than expectations of 51.2.
A bearish factor for crude prices is Monday's projection by Citigroup that U.S. crude production will break the early 2020 record of 13.1 million bpd by year-end, barring an active hurricane season in the Gulf of Mexico.
Oil prices continue to be undercut by concern about weaker Chinese energy demand. China's National Petroleum Corp (CNPC), China's largest oil and gas producer, cut its 2023 China crude oil demand forecast on June 20 to +3.5% to 740 MMT from a March forecast of +5.1% to 756 MMT. In another sign of weak Chinese oil demand, analytics firm Kpler recently reported that China's crude oil stockpiles rose to a 2-year high in May of 966 million bbl, well above the five-year average of 858 million bbl.
A decline in crude in floating storage is supportive of 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 -23% w/w to 102.70 million bbl as of June 30.
An increase in OPEC crude production is bearish for oil prices. OPEC Jun crude production rose +80,000 bpd to 28.57 million bpd.
Today's weekly EIA report was mixed for crude and products. On the bearish side, EIA crude inventories fell -1.5 million bbl, a smaller draw than expectations of -2.0 million bbl. Also, U.S. crude production in the week ended June 30 rose +1.6% w/w to 12.4 million bpd, matching a 3-year high. On the bullish side, EIA gasoline supplies fell -2.55 million bbl, a bigger draw than expectations of no change as U.S gasoline demand rose +3.1% w/w to 9.6 million bpd, a 1-1/2 year high. Also, EIA distillate stockpiles unexpectedly fell -1.05 million bbl versus expectations of a +50,000 bbl build.
Today's EIA report showed that (1) U.S. crude oil inventories as of June 30 were -1.5% below the seasonal 5-year average, (2) gasoline inventories were -7.6% below the seasonal 5-year average, and (3) distillate inventories were -15.0% below the 5-year seasonal average. U.S. crude oil production in the week ended June 30 rose +1.6% w/w to 12.4 million bpd, matching the 3-year high of 12.4 million bpd posted in the week ended June 9. 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 June 23 fell by -6 rigs to a 1-1/4 year low of 546 rigs. That is well below the 3-1/4 year high of 627 rigs posted on December 2, 2022. U.S. active oil rigs have more than tripled from the 18-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.
