May WTI crude oil (CLK23) on Tuesday closed up +0.29 (+0.36%), and May RBOB gasoline (RBJ23) closed down -2.04 (-0.74%).
Crude oil and gasoline prices Tuesday settled mixed with crude posting a 2-1/4 month high. Crude prices have carryover support from Sunday when OPEC+ unexpectedly announced a -1.0 million bpd cut in crude production. A slump in the dollar index (DXY00) Tuesday to a 2-month low was also supportive for energy prices. However, crude prices fell back from their best levels, and gasoline declined on signs of a slowdown in the U.S. labor market after the Feb JOLTS job openings fell more than expected.
Crude prices rose +25 cents/bbl above their Tuesday afternoon closing level after the API reported that U.S. crude supplies fell -4.3 million bbl last week. The consensus is that Wednesday's weekly EIA crude inventories will fall by -1.7 million bbl.
Signs of weakness in the U.S. economy are negative for energy demand and crude prices. Tuesday's economic reports showed the Feb JOLTS job openings fell -632,000 to a 1-3/4 year low of 9.931 million, showing a weaker labor market than expectations of 10.500 million. Also, Feb factory orders fell -0.7% m/m, weaker than expectations of -0.5% m/m.
Another bearish factor for crude prices is the resumption of Iraqi crude exports from the Turkish port of Ceyhan. On Tuesday, the Iraqi government and Kurdish officials said they would sign an agreement to allow the resumption of 400,000 bpd of oil exports from the Turkish port of Ceyhan. The crude exports were halted last week after Iraq won an arbitration case from the International Chamber of Commerce that said Turkey violated a 1973 pipeline transit agreement by allowing crude from the Kurdish region to be exported without Iraqi government consent.
Crude prices surged Monday after OPEC+ on Sunday announced a surprise oil production cut of more than 1 million bpd starting May 1. Saudi Arabia said the cuts were a "precautionary measure aimed at supporting the stability of the oil market." OPEC Mar crude production fell -80,000 bpd to 29.16 million bpd.
The outlook for stronger Chinese crude oil demand is bullish for prices. China National Petroleum Corp, the country's largest refiner, predicts that oil demand in China may expand this year by +5.1% to 756 MMT as the country emerges from the pandemic. However, oil demand in China has recently been weak. China car sales in Jan-Feb fell -9.4% y/y and international flights from China were at only 22% of pre-pandemic levels as of March 16.
Weakness in the crude crack spread is bearish for oil prices. The crack spread Tuesday fell to a 6-week low, discouraging refiners from purchasing crude oil to refine it into gasoline and distillates.
In a bearish factor, Vortexa Monday reported that the amount of crude stored on tankers that have been stationary for at least a week rose +5.4% w/w to 104.60 million bbl in the week ended March 31.
Rising crude demand in India is bullish for oil prices. India's oil ministry reported on March 22 that India Feb crude oil imports rose +8.5% y/y to 19.1 MMT, the most in seven months.
Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of March 24 were +5.7% above the seasonal 5-year average, (2) gasoline inventories were -4.6% below the seasonal 5-year average, and (3) distillate inventories were -8.7% below the 5-year seasonal average. U.S. crude oil production in the week ended March 24 fell -0.8% w/w to 12.2 million bpd, only 0.9 million bpd (-6.9%) 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 March 31 fell by -1 rig to 592 rigs, moderately below the 2-1/2 year high of 627 rigs posted on December 2. U.S. active oil rigs have more than tripled from the 17-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity.
