July WTI crude oil (CLN23) this morning is up +1.22 (+1.74%), and July RBOB gasoline (RBN23) is up +3.57 (+1.479%). July Nymex natural gas (NGN23) is up +0.038 (+1.76%).
Crude oil and gasoline prices this morning are moderately higher. Crude prices are climbing in hopes of stronger Chinese energy demand after Bloomberg reported the Chinese government is working on a new basket of measures to support the property market. Also, the larger-than-expected increase in today's U.S. May nonfarm payroll report shows strength in the labor market that is supportive of economic growth and energy demand. Finally, fund short covering is lifting crude prices ahead of this weekend's OPEC+ meeting.
July nat-gas this morning is moderately higher. The Senate's passage late Thursday of a debt ceiling suspension sparked a rally today in risk assets, including nat-gas. However, gains in nat-gas were limited by the outlook for mild U.S. temperatures, which would curb nat-gas demand from electricity providers to power air conditioning. Forecaster Atmospheric G2 said mild temperatures are expected across most of the eastern and southern U.S. at least through mid-June.
OPEC+ is meeting Saturday and Sunday to discuss crude production levels. Goldman Sachs predicts the group will maintain crude output at current levels as "they want to observe the impact of fresh cuts in production, which just started this month."
Russian Deputy Prime Minister Novak last Thursday said he doesn't see any new steps from OPEC+ and the group will likely maintain current crude production levels when it meets this weekend. Crude prices surged on April 3 after OPEC+ 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 May crude production fell -500,00 bpd to a 16-month low of 28.26 million bpd.
Stronger-than-expected global economic news today is bullish for energy demand and crude prices. U.S. May nonfarm payrolls rose +339,000, stronger than expectations of +195,000 and the largest increase in 4 months. Also, French Apr manufacturing production rose +0.7% m/m, stronger than expectations of +0.1% m/m.
On the negative side, India's Apr crude imports fell -8.3% y/y to 19.8 MMT as processors curbed operating rates amid a drop in petroleum-product exports. India is the world's third-largest crude-consuming country in the world.
In a bullish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week fell -0.5% w/w to 93.59 million bbl in the week ended May 26.
Crude oil prices are being undercut by signs that Russia has not delivered on its threat to cut crude output. Tanker-tracking data from Bloomberg shows Russia's crude exports in the four weeks to May 21 were more than 480,000 bpd higher than during the four weeks to February 26 to nearly 4 million bpd. Crude shipments from Russian ports are +1.2 million bpd higher than at the end of 2022, with most of the crude going to India and China. Russia has halted the publication of crude and condensate production data in an attempt to disguise if it has actually cut crude output.
Thursday's EIA report showed that (1) U.S. crude oil inventories as of May 26 were -2.0% below the seasonal 5-year average, (2) gasoline inventories were -7.8% below the seasonal 5-year average, and (3) distillate inventories were -16.6% below the 5-year seasonal average. U.S. crude oil production in the week ended May 26 fell -0.8% w/w to 12.1 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 May 26 fell by -5 to a 1-year low of 570 rigs, falling further 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.
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.
