October WTI crude oil (CLV23) this morning is up +1.60 (+1.81%), and Oct RBOB gasoline (RBV23) is up +1.85 (+0.68%).
Crude oil and gasoline prices this morning are higher, with crude posting a 10-month high and gasoline posting a 2-week high. Crude rallied today on speculation China's economic growth and energy demand will improve after the Chinese central bank cut the reserve requirement ratio for banks. Also, better-than-expected U.S. economic news today signaled growth in the economy that is bullish for energy demand. In addition, ever-tighter global crude supplies are underpinning oil prices. On the bearish side, crude oil prices are being undercut by a rally in the dollar index (DXY00) to a 6-month high.
Crude moved higher today after the PBOC cut the reserve requirement ratio by 25 bp to 10.50% from 10.75%, which may spur economic growth and boost energy demand in China, the world's second-largest crude consumer.
Today's U.S. economic news was better-than-expected and supportive of energy demand and crude prices. Weekly initial unemployment claims rose +3,000 to 220,000, showing a stronger labor market than expectations of 225,000. Also, Aug retail sales rose +0.6% m/m, stronger than expectations of +0.1% m/m.
A bearish factor for crude was today's action by the ECB to cut its Eurozone 2023 GDP forecast to 0.7% from a prior forecast of 0.9%, which signals reduced energy demand.
Crude found support Tuesday after the monthly report from OPEC projected the global oil market may experience a shortfall of 3.3 million bpd in the fourth quarter, the tightest oil market in more than ten years. Also, the International Energy Agency (IEA) on Tuesday projected the global oil market faces a deficit of about -1.2 million bpd in the second half of this year as oil supply cuts by Saudi Arabia and Russia create a "significant supply shortfall."
The global crude market continues to tighten and underpin oil prices after Saudi Arabia last Tuesday said it would maintain its unilateral crude production cut of 1.0 million bpd through December. The move will hold Saudi Arabia's crude output at about 9 million bpd, the lowest level in three years. Also, last Tuesday, Russia announced it would maintain its 300,000 bpd cut in crude production through December.
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 August dropped to 2.28 million bpd, down -9% m/m and the lowest daily average in eleven months.
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 -5.8% w/w to 81.02 million bbl as of Sep 8, the lowest in 9 months.
An increase in Iranian crude exports is boosting global supplies and is bearish for oil prices. According to TankerTrackers.com, Iranian crude exports rose to a 5-year high of 2.2 million bpd during the first 20 days of August, with most of the crude going to China.
A negative factor for crude prices is the progress made in Iran-U.S. relations that could lead to higher crude exports from Iran after Iran said the recent deal with the U.S. on the release of prisoners and frozen Iranian funds could lead to diplomacy in other areas, including its nuclear program. An agreement on Iran's nuclear program could eventually prompt the U.S. and its allies to remove sanctions on Iranian crude exports, boosting global crude supplies.
A decline in crude demand in India, the world's third-biggest crude consumer, is bearish for oil prices. India's July crude oil imports fell -6.3% y/y to 19.3 MMT, the lowest in 8 months.
OPEC crude production in August was little changed, rising +40,000 bpd to 27.82 million bpd, recovering slightly from July's 1-3/4 year low of 27.78 million bpd.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Sep 8 were -2.9% below the seasonal 5-year average, (2) gasoline inventories were -2.5% below the seasonal 5-year average, and (3) distillate inventories were -12.6% below the 5-year seasonal average. U.S. crude oil production in the week ended Sep 8 rose +0.8% w/w to 12.9 million bpd, the most in 3-1/2 years. U.S. crude oil production is modestly 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 Sep 8 rose +1 to 513 rigs, just above the previous week's 17-month low of 512 rigs. That is well below the 3-1/4 year high of 627 rigs posted on Dec 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.
