Crude Oil Climbs on Setback in Iran Nuclear Negotiations

Oct WTI crude oil (CLV22) on Friday closed up +0.26 (+0.30%), and Oct RBOB gasoline (RBV22) closed +7.83 (+3.28%).

Crude oil prices Friday rallied on a mildly weaker dollar, a -9 rig decline in U.S. oil rigs, and a setback in negotiations over Iran's nuclear program.  The U.S. State Department Friday said that Iran's latest response in negotiations over its nuclear program was "not constructive."  That may further delay a nuclear deal with Iran that might lift sanctions and allow Iran's crude oil exports back onto the global market.

A bearish factor for crude is the outlook for reduced crude demand in China, the world's largest crude importer.  Chinese authorities on Thursday ordered the city of Chengdu, with 21 million people, locked down due to rising Covid infections.

Crude prices were undercut Tuesday when Russia's Tass media outlet reported that OPEC+ is not currently discussing a potential cut in crude production.  Crude prices rallied last week when Saudi Arabia raised the possibility that OPEC+ might need to restrict supply due to a disconnect in oil futures prices.  OPEC+ will meet Monday, September 5, to discuss crude production levels.

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 -7.8% w/w to 100.70 million bbls in the week ended August 26.

Reduced Chinese crude demand is bearish for prices.  Chinese refineries in July handled the least amount of oil since March 2020 as Covid lockdowns and refinery shutdowns for maintenance undercut crude demand.  As a result, China's apparent oil demand in July fell -9.7% y/y to 12.16 million bpd, and China's Jan-July apparent oil demand is down -4.6% y/y to 12.74 million bpd.  

OPEC+ production in Aug rose by +590,000 bpd to a 2-1/4 year high of 29.640 million bpd, according to the IEA, but is still running more than 2 million bpd below quotas due to various supply disruptions and capacity constraints.  Nigerian and Libyan crude output has fallen in recent months due to damaged pipelines in Nigeria and political unrest in Libya, undercutting the overall OPEC+ production level.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of August 26 were -6.3% below the seasonal 5-year average, (2) gasoline inventories were -7.5% below the seasonal -year average, and (3) distillate inventories were -23.8% below the 5-year seasonal average.  U.S. crude oil production in the week ended August 26 rose +100,000 bpd to 12.1 million bpd, which is only -1.0 million bpd (-7.6%) 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 Sep 2 fell by -9 rigs to 596 rigs from the 2-1/4 year high of 605 rigs posted in the week ended July 29.  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.
 

• Crude Climbs on Dollar Weakness and a Setback in Iran Nuclear Negotiations
• Crude Prices Retreat on Dollar Strength and Energy Demand Concerns
• Nat-Gas Pushes Higher on Expectations of Warm U.S. Temps
• Crude Tumbles on Dollar Strength and Chinese Energy Demand Concerns