July WTI crude oil (CLN24) Wednesday closed up +0.82 (+1.12%), and July RBOB gasoline (RBN24) closed up +0.41 (+0.17%).
Crude oil and gasoline prices on Wednesday recovered from early losses and finished moderately higher. Technical short-covering emerged in crude futures Wednesday after prices fell for five consecutive sessions and became oversold. Oil prices had tumbled more than -4% this week to a 4-month low Tuesday on negative carryover from Sunday when OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies. Crude prices settled higher Wednesday despite an unexpected build in weekly EIA crude inventories.
Global economic news Wednesday was mixed for energy demand and crude prices. On the bullish side, the US May ISM services index rose +4.4 to 53.8, stronger than expectations of 51.0 and the highest level in 9 months. Also, the China May Caixin services PMI rose +1.5 to a 10-month high of 54.0, stronger than expectations of no change at 52.5. Conversely, the US May ADP employment change rose by +152,000, weaker than expectations of +175,000. Also, the Eurozone May S&P composite PMI was revised downward by -0.1 to 52.2 from the previously reported 52.3.
An increase in OPEC crude output is negative for oil prices. OPEC May crude production rose +60,000 bpd to 26.96 million bpd, a 5-month high.
OPEC+ on Sunday agreed to extend the 2 million bpd of voluntary crude production cuts into Q3 but then 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.
An increase in crude oil in floating storage is bearish 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 rose +2.2% w/w to 85.62 million bbl as of May 31.
Crude oil prices have underlying support from concern about the Hamas-Israel conflict. Israel's military is conducting military operations in the southern Gaza city of Rafah despite opposition from the Biden administration. There is also concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran. Meanwhile, 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.
Higher than expected Russian crude output is bearish for oil prices. Russian crude processing averaged 5.45 million bpd in the first half of May, up 4% above April's level as refineries recovered from Ukrainian drone strikes. Russia's fuel exports are steady as refineries come back online after being damaged by Ukrainian drone attacks. Russian fuel exports in the week to June 2 were unchanged from the prior week at 3.22 million bpd.
Wednesday's weekly EIA report was bearish for crude and products. EIA crude inventories unexpectedly rose +1.23 million bbl versus expectations for a -2.3 million bbl draw. Also, EIA gasoline supplies rose +2.1 million bbl, above expectations of +1.7 million bbl. In addition, EIA distillate stockpiles rose +3.2 million bbl, above expectations of +2.17 million bbl. Finally, crude supplies at Cushing, the delivery point of WTI futures, rose +854,000 bbl.
Wednesday's EIA report showed that (1) US crude oil inventories as of May 31 were -3.9% below the seasonal 5-year average, (2) gasoline inventories were -0.7% below the seasonal 5-year average, and (3) distillate inventories were -6.8% below the 5-year seasonal average. US crude oil production in the week ending May 31 was unchanged w/w at 13.1 million bpd, slightly below the recent record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ended May 31 fell -1 rig to 496 rigs, slightly above the 2-year low of 494 rigs posted on November 10. 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.
