September WTI crude oil (CLU23) on Friday closed up +0.49 (+0.61%), and Sep RBOB gasoline (RBU23) closed up +0.61 (+0.21%).
Crude oil and gasoline prices Friday posted moderate gains, with crude climbing to a 3-1/4 month high and gasoline climbing to a 9-month high. A weaker dollar Friday was bullish for energy prices. Crude prices also have support on Friday's weaker-than-expected U.S. inflation news that may allow the Fed to stop raising interest rates, bolstering the outlook for the U.S. economy to avoid a recession. Gains in crude were limited as Friday's mixed global economic news was bearish for growth prospects and energy demand.
Friday's U.S. inflation news was weaker-than-expected, potentially allowing the Fed to stop raising interest rates, which is positive for economic growth and energy demand. The Jun PCE core deflator, the Fed's preferred gauge of inflation, eased to +4.1% y/y from +4.6% y/y in May, better than expectations of +4.2% y/y and the slowest pace of increase in 1-3/4 years. Also, the Q2 employment cost index rose +1.0% (q/q annualized), slower than expectations of +1.1% and the smallest pace of increase in 2 years.
Friday's global economic news was mixed for energy demand and crude prices. On the negative side, U.S. Jun personal income rose +0.3% m/m, weaker than expectations of +0.5% m/m. Also, the University of Michigan U.S. Jul consumer sentiment was revised lower to 71.6 from the initially reported 72.6. In addition, Eurozone Jul economic confidence fell -0.8 to a 9-month low of 94.5, weaker than expectations of 95.0. Finally, German Q2 GDP was unchanged q/q, weaker than expectations of +0.1% q/q. On the positive side, U.S. Jun personal spending rose +0.5% m/m, stronger than expectations of +0.4% m/m.
Strength in the crude cracks spread supports oil prices as the spread climbed to a 9-month high Friday. The stronger crack spread encourages refiners to boost their crude purchases and refine the crude into gasoline and distillates.
Crude prices have support on signs China will implement policies to revive economic growth. This week’s Politburo meeting laid out a pre-growth tone that was more dovish than markets expected. The ruling Communist Party’s 24-member Politburo, China’s top decision-making body led by President Xi Jinping, promised “counter-cyclical” policies, which imply an easing bias.
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.
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 23 dropped to a 7-month low of 1.17 million bpd.
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. 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 -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.
Wednesday's weekly EIA report showed that (1) U.S. crude oil inventories as of July 21 were +1.6% above the seasonal 5-year average, (2) gasoline inventories were -7.4% below the seasonal 5-year average, and (3) distillate inventories were -14.4% below the 5-year seasonal average. U.S. crude oil production in the week ended July 21 fell -0.8% w/w to 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 Friday that active U.S. oil rigs in the week ended July 28 fell by -1 rig to a 16-1/2 month low of 529 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.
