Oct WTI crude oil (CLV22) on Tuesday closed down -0.47 (-0.54%), and Oct RBOB gasoline (RBV22) closed up +3.56 (+1.46%). Â
Crude oil and gasoline prices Tuesday settled mixed. Â A sharp rally in the dollar index was bearish for energy prices. Â Also, Tuesday's sharp selloff in stocks undercut confidence in the economic outlook and was negative for crude oil demand. Â Gasoline prices rose on signs of tight supplies on the U.S. West Coast and the threat of a nationwide rail strike on Friday.
Crude prices climbed about +25 cents/bbl above their Tuesday afternoon closing level despite the report from API that showed U.S. crude supplies rose +6.04 million bbl last week. Â The consensus is for Wednesday's weekly EIA crude inventories to climb +1.85 million bbl.
Energy demand worries weighed on crude prices as Tuesday's stronger-than-expected U.S Aug CPI report may push the Fed to keep aggressively hiking interest rates, which risks sending the economy into recession and reducing energy demand. Â
Crude prices Tuesday recovered from their worst levels on a Bloomberg report that said the Biden administration was considering buying crude oil to refill the Strategic Petroleum Reserve (SPR) when prices fall below $80 a barrel. Â The SPR is currently at its lowest level since 1984 after the Biden administration back in March ordered the release of 180 million barrels of oil from the reserve to curb surging oil prices. Â
Gasoline prices have support from signs of tight supplies on the U.S. West Coast, as EIA data show gasoline inventories on the West Coast have fallen to the lowest seasonal level since 1997. Â Also, the threat of a nationwide rail strike this Friday is supportive for gasoline since a rail strike would lead to chemical supplies backing up at oil refineries, forcing refiners to reduce operating rates and produce less gasoline and diesel.
Crude prices are being undercut by reduced crude oil demand in China, the world's largest crude importer. Â About 65 million people across China are now subject to restrictions in their mobility due to pandemic lockdowns. Â Chinese authorities last Thursday extended a pandemic lockdown in Chengdu, a city of 21 million, through September 14. Â Last Wednesday, China imposed a lockdown on Guiyang, a city of 6.1 million people. Â Chinese refineries in July handled the least amount of oil since March 2020 as Covid lockdowns and refinery shutdowns for maintenance undercut crude demand. Â 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. Â
Oil prices are also seeing support from the dim prospects for a nuclear deal with Iran that would lift sanctions against Iran and allow its crude back onto the global markets. Â The International Atomic Energy Agency (IAEA) on Monday said that "the information gap is bigger and bigger" on Iran's recent nuclear activities. Â Also, the European Union's chief negotiator said Saturday that "in light of Iran's failure to conclude the agreement on the table, we will consult with our international partners on how best to deal with Iran's continued nuclear escalation."
Crude oil prices garnered support after OPEC+ last Monday agreed to cut its crude production level by 100,000 bpd in October, its first cut in production in more than a year. Â Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said, "the simple tweak in production shows that OPEC+ will be attentive, preemptive and pro-active" in managing crude markets.
Reduced crude production in Libya is supportive of oil prices after Libya's state-run National Oil Corp said last Tuesday that Libyan crude production had dropped more than -100,000 bbl to 1.1 million bpd, down from the 1.226 million bpd it produced last week.
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 +11% w/w to 92.32 million bbls in the week ended September 9.
OPEC+ production in August 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. Â 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.
Last Thursday's EIA report showed that (1) U.S. crude oil inventories as of September 2 were -3.4% below the seasonal 5-year average, (2) gasoline inventories were -6.9% below the seasonal 5-year average, and (3) distillate inventories were -23.3% below the 5-year seasonal average. Â U.S. crude oil production in the week ended September 2 was unchanged at 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 last Friday that active U.S. oil rigs in the week ended September 9 fell by -5 rigs to 591 rigs from the 2-1/4 year high of 605 rigs posted in the week ended July 29. Â 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.
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