June WTI crude oil (CLM23) this morning is down -0.88 (-1.21%), and June RBOB gasoline (RBM23) is up +0.20 (+0.08%). June Nymex natural gas (NGM23) is up +0.153 (+6.47%).
Crude oil and gasoline prices this morning are mixed, with gasoline climbing to a 3-week high. A rally in the dollar (DXY00) today to a 1-3/4 month high is bearish for energy prices. Crude prices are also under pressure today on hawkish comments from the Fed and ECB, which raises concerns central banks will keep raising interest rates that could further slow economic growth and energy demand. A rally in the S&P 500 today to a 2-1/2 week high is positive for energy prices as it shows confidence in the economic outlook that is supportive of energy demand.
Jun nat-gas this morning is sharply higher and posted a 2-1/2 week high. A smaller-than-expected build in weekly domestic supplies is pushing prices higher. The EIA reported nat-gas inventories rose +99 bcf last week, well below expectations of +108 bcf. Nat-fas prices also rose on forecasts for hot U.S. weather that will boost nat-gas demand from electricity providers to power increased air conditioning usage. Forecaster Maxar Technologies said above-normal temperatures are expected across most of the northern U.S. states from May 23-June 1.
Hawkish central bank comments today suggest policymakers support tighter monetary policy, which would be negative for economic growth and energy demand. Dallas Fed President Logan said inflation is too high, and the case for the Fed pausing interest rate increases at the June FOMC meeting isn't yet clear. Also, ECB Vice President Guindos said inflation in services is most worrying for the ECB, and it is too soon to say where the ECB will pause its interest rate hikes.
The outlook for stronger U.S. fuel demand is bullish for crude prices. AAA is forecasting that as many as 42.3 million Americans will travel 50 miles or more from home this Memorial Day weekend, up +7% y/y and the highest for a Memorial Day weekend since 2005.
Crude has support on reduced Canadian crude output as wildfires in Alberta have halted at least 240,000 bpd and possibly 300,000 bpd of crude production from several Canadian crude producers. The total number of wildfires in Alberta rose to 91 Wednesday afternoon from 86 on Tuesday, with 27 still considered out of control.
Crude prices also have support on crude buying by the government to refill the Strategic Petroleum Reserve (SPR). The Energy Department announced Monday that it is soliciting bids for up to 3 million bbl of sour crude to refill the SPR with deliveries in August and that it plans to purchase more oil later this year.
In a bearish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week rose +9% w/w to 86.69 million bbl in the week ended May 12.
The ongoing halt of Iraqi crude exports from the Turkish port of Ceyhan is tightening global oil supplies and is bullish for crude prices. The Turkish government said it wants to negotiate a $1.5 billion settlement that it has been ordered to pay before allowing Iraqi crude exports to resume through its pipeline. Oil exports of 500,000 bpd from the Turkish port of Ceyhan have been halted since March 25 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 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 jumped above 4 million bpd in the week of April 28. Russia has halted the publication of crude and condensate production data in an attempt to disguise if it has actually cut crude output.
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 Mar crude production fell by -80,000 bpd to 29.16 million bpd.
Wednesday's EIA report showed that (1) U.S. crude oil inventories as of May 12 were -0.1% below the seasonal 5-year average, (2) gasoline inventories were -6.4% below the seasonal 5-year average, and (3) distillate inventories were -16.4% below the 5-year seasonal average. U.S. crude oil production in the week ended May 12 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 May 12 fell by -2 to an 11-month low of 586 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.
