September WTI crude oil (CLU23) this morning is down -0.93 (-1.11%), and Sep RBOB gasoline (RBU23) is up +0.52 (+0.19%).
Crude oil and gasoline prices this morning are mixed. Crude prices fell back from a 3-3/4 month high in overnight trade and turned lower on concerns the Fed will continue to raise interest rates, potentially undercutting economic growth and energy demand.
Crude prices initially posted a 3-3/4 month high in overnight trade after Ukraine drones attacked a Russian oil tanker in the Black Sea, a route that accounts for 20% of the oil that Russia sells daily on global markets, which elevates the risks to Russian crude supplies.
Hawkish Fed comments signal the Fed may continue to raise interest rates, which could curb economic growth and energy demand. NY Fed President Williams said, "I expect that Fed policy will need to be kept restrictive for some time" and that the need for more rate hikes is "an open question." Also, Fed Governor Bowman said that "additional rate increases will likely be needed to get inflation down to the FOMC's 2% target" to fully restore price stability.
Crude prices have carryover support from last Thursday when Saudi Arabia and Russia said they would extend their crude production cuts. Saudi Arabia on Thursday said it will extend its 1 million bpd cut in crude production into September and said its crude output may "be extended, or extended and deepened." The cut in Saudi production keeps its crude output at about 9 million bpd, the lowest level in several years. Also, Russian Deputy Prime Minister Novak said Russia "will continue to voluntarily reduce its oil supply in September by 300,000 bpd" to balance the market. Russia cut its crude output by 500,000 bpd in August.
OPEC crude production in July fell -900,000 bpd to a 1-3/4 year low of 27.79 million bpd.
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.
A decline in crude in floating storage is bullish for prices. Today'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 -4.6% w/w to 103.05 million bbl as of August 4.
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.
Last Wednesday's weekly EIA report showed that (1) U.S. crude oil inventories as of July 28 were -1.6% below the seasonal 5-year average, (2) gasoline inventories were -6.3% below the seasonal 5-year average, and (3) distillate inventories were -14.6% below the 5-year seasonal average. U.S. crude oil production in the week ended July 28 was unchanged w/w at 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 August 4 fell by -4 rigs to a 17-month low of 525 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.
