August WTI crude oil (CLQ23) on Friday closed up +2.06 (+2.87%), and Aug RBOB gasoline (RBQ23) closed up +4.55 (+1.79%).
Crude oil and gasoline prices Friday settled moderately higher, with crude climbing to a 1-month high. A fall in the dollar index (DXY00) Friday to a 2-week low supported gains in energy prices. Crude also has carryover support from this week's action by Saudi Arabia and Russia to extend their voluntary crude production cuts. Crude prices raced to their highs Friday afternoon after the weekly report from Baker Hughes showed active U.S. oil rigs fell to a 15-month low.
Strength in the crude crack spread supports crude prices after the crack spread Friday rose to a 2-1/2 week high. The higher crack spread encourages refiners to boost their crude purchases and refine the crude into gasoline and distillates.
In a supportive factor for oil prices, Saudi Arabia this week said it would extend its unilateral 1 million bpd production cut through August, keeping Saudi Arabia's crude output at about 9 million bpd, the lowest level in several years. Also, Russia pledged Monday that it would voluntarily cut 500,000 bpd of crude output in August.
A bullish factor for crude prices was Thursday's action by Saudi Arabia's state-owned Aramco to raise the price of all of its crude grades to customers for delivery in August.
On the negative side, Russia has yet to fully implement its pledged crude production cuts. Russian crude production cuts totaled 350,000 bpd in June, below the 500,000 bpd of cuts it said it would implement in March.
Friday's global economic news was weaker than expected and bearish for energy demand and crude prices. U.S. Jun nonfarm payrolls rose +209,000, weaker than expectations of +230,000 and the smallest increase in 2-1/2 years. Also, German May industrial production fell -0.2% m/m, weaker than expectations of no change. In addition, Japan's May household spending fell -4.0% y/y, weaker than expectations of -2.5% y/y.
A bearish factor for crude prices was Monday's projection by Citigroup that U.S. crude production will break the early 2020 record of 13.1 million bpd by year-end, barring an active hurricane season in the Gulf of Mexico.
Oil prices continue to be undercut by concern about weaker Chinese energy demand. China's National Petroleum Corp (CNPC), China's largest oil and gas producer, cut its 2023 China crude oil demand forecast on June 20 to +3.5% to 740 MMT from a March forecast of +5.1% to 756 MMT. In another sign of weak Chinese oil demand, analytics firm Kpler recently reported that China's crude oil stockpiles rose to a 2-year high in May of 966 million bbl, well above the five-year average of 858 million bbl.
A decline in crude in floating storage is supportive of prices. Monday's weekly data from Vortexa shows the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -23% w/w to 102.70 million bbl as of June 30.
An increase in OPEC crude production is bearish for oil prices. OPEC Jun crude production rose +80,000 bpd to 28.57 million bpd.
Thursday's EIA report showed that (1) U.S. crude oil inventories as of June 30 were -1.5% below the seasonal 5-year average, (2) gasoline inventories were -7.6% below the seasonal 5-year average, and (3) distillate inventories were -15.0% below the 5-year seasonal average. U.S. crude oil production in the week ended June 30 rose +1.6% w/w to 12.4 million bpd, matching the 3-year high of 12.4 million bpd posted in the week ended June 9. U.S. crude oil production is well below the Feb-2020 record-high of 13.1 million bpd.
Baker Hughes reported Friday that active U.S. oil rigs in the week ended June 30 fell by -5 rigs to a 15-month low of 540 rigs. That is well below the 3-1/4 year high of 627 rigs posted on December 2, 2022. U.S. active oil rigs have more than tripled from the 18-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.
