September WTI crude oil (CLU23) this morning is up +1.84 (+2.39%), and Sep RBOB gasoline (RBU23) is up +8.77 (+3.18%).
Crude oil and gasoline prices this morning are sharply higher, with crude rallying to a 3-month nearest-futures high and gasoline climbing to a 9-month high. Crude prices are underpinned by the outlook for tighter supplies after Saudi Arabia earlier this month said it would extend its unilateral 1 million bpd crude production cut through August and after Russia's crude shipments fell to a 6-month low. Gains in crude accelerated on technical buying today after prices rose above their 200-day moving average.
Strength in the crude crack spread is bullish for oil prices after the crack spread today jumped to a 4-month high. The stronger crack spread encourages refiners to boost their crude purchases and refine the crude into gasoline and distillates.
Today's global news on manufacturing activity was mixed for energy demand and crude prices. On the positive side, the U.S. Jul S&P manufacturing PMI unexpectedly rose +2.7 to 49.0, stronger than expectations of a decline to 46.2. Conversely, the Eurozone Jul S&P manufacturing PMI unexpectedly fell -0.7 to 42.7, weaker than expectations of an increase to 43.5 and the steepest pace of contraction in more than three years. Also, the Japan Jul Jibun Bank manufacturing PMI fell -0.4 to a 4-month low of 49.4.
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 16 dropped to a 6-month low of 3.1 million bpd.
Crude prices have support from signs China will implement policies to revive economic growth. Last Wednesday, the Communist Party and the government issued a rare joint statement that included 31 measures to improve business conditions, including pledges to treat private companies the same as state-owned enterprises and consult more with entrepreneurs before drafting policies.
In a supportive factor for oil prices, Saudi Arabia earlier this month 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 voluntarily pledged to cut 500,000 bpd of crude output in August. However, Russia has yet to implement its pledged crude production cuts fully. Russian crude production cuts totaled 350,000 bpd in June, below the 500,000 bpd of cuts it said it would implement in March. Meanwhile, OPEC crude production in June rose +80,000 bpd to 28.57 million bpd.
A decline in crude in floating storage is bullish for prices. Today'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 -2.2% w/w to 106.95 million bbl as of July 21.
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.
Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of July 14 were +1.1% above the seasonal 5-year average, (2) gasoline inventories were -7.6% below the seasonal 5-year average, and (3) distillate inventories were -14.3% below the 5-year seasonal average. U.S. crude oil production in the week ended July 14 was unchanged w/w at 12.3 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 July 21 fell by -7 rigs to a 16-month low of 530 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.
