Crude Retreats as the Dollar Rebounds and Libya Boosts Crude Output

July WTI crude oil (CLN22) this morning is down -1.12 (-0.94%), and July RBOB gasoline (RBN22) is down -2.93 (-0.69%).  July Nymex natural gas (NGN22) is up +0.720 (+8.45%).

Crude oil and gasoline prices this morning gave up an early advance and turned lower after the dollar recovered from early losses and moved higher.  Early Monday, crude climbed to a 3-month high, and gasoline prices posted a new record high after Saudi Arabia boosted its official selling price to Asian buyers.

Nat-gas prices this morning rallied to a 1-week high and are sharply higher on expectations for hot U.S. temperatures to boost demand from power providers to power increased air-conditioning usage.  Today, the Comodity Weather Group said that above-normal temperatures are expected in the U.S. South, West, and parts of the Midwest through June 15.  Also, lower U.S. nat-gas output is supportive for prices after BNEF data show U.S. lower-48 nat-gas production Monday at 94.8 bcf, down -1.7% w/w and the lowest output in 2-1/2 weeks.

Crude prices Monday initially rallied after Saudi Arabia raised its oil prices to Asian buyers for July delivery by $2.10 a barrel from June, a bigger increase than expectations for a $1.50 a barrel increase.

A bearish factor for crude was today's announcement from Libya that it was restarting crude production at its Sharara oil field, the country's biggest, after production was halted for two months after government protesters forced a stop in crude output.  As a result, Libya’s May crude production fell -140,000 bpd to 760,000 bpd, the smallest amount in 1-1/2 years, as armed clashes and protests curbed the country's crude output.  

Goldman Sachs predicts that global oil markets are poised to get "significantly tighter" into the summer months as China emerges from lockdowns, a strong summer travel season gets underway, and Russian crude production slows further.

China has eased pandemic restrictions in several regions, which should boost economic activity and energy demand as cities reopen.  The recent surge in Covid infections in China has forced the government to impose pandemic restrictions and lockdowns that have curbed economic growth and energy demand.  A resurgence of Covid infections in China has prompted the government to put some 45 million people under pandemic lockdowns.  Recent data showed that in April, China's apparent oil demand fell -6.7% y/y to 12.09 million bpd.  Also, China Apr crude processing fell -10% y/y to a 2-year low of 51.81 MMT.

Crude found support today from an increase in the crude crack spread to a new 2-year high.  The higher crack spread is supportive for crude as it encourages refiners to boost their crude purchases to refine the crude into gasoline.

The recent surge in diesel prices to a record high has provided support for the prices of gasoline and other refined products.  The diesel crack spread Apr 28 surged to a record high (data from 1986) on depleted global diesel supplies as countries worldwide shun Russian fuel supplies and scramble to obtain diesel supplies elsewhere.

Crude prices have support after EU leaders last Thursday agreed on the sixth package of sanctions against Russia, including a partial ban on Russian crude.  The sanctions would forbid the purchase of crude oil and petroleum products from Russia delivered by sea but include a temporary exemption for pipelines.  Also, the EU's ban gives an exemption to Hungary, which would continue to receive Russian pipeline oil.

A bearish factor for crude was last Thursday's action by OPEC+ to agree to boost its crude output by 648,000 bpd in July and August, up from 432,000 bpd in recent months.

OPEC crude oil production in May rose by +130,000 bpd to a 2-year high of 28.850 million bpd.  OPEC was expected to increase output by +290,000 bpd in May, but supply constraints in Libya and Nigeria prevented OPEC from reaching that level.  

Crude oil has support from ongoing concern that Russia may use energy as a weapon against countries that imposed sanctions for its attack on Ukraine.  Russia halted natural gas shipments to Bulgaria, Denmark, Finland, the Netherlands, and Poland for failing to pay for Russian gas supplies in rubles.  Russia is trying to force its European customers to pay rubles for its oil and gas exports.

The amount of crude held worldwide in floating storage on tankers has decreased and is bullish for prices.  Vortexa reported today that the amount of crude stored on tankers that have been stationary for at least a week in the week ended June 3 fell by -11% w/w to 89.31 million bbl.

Last Thursday's weekly EIA report showed that (1) U.S. crude oil inventories as of May 27 were -15.0% below the seasonal 5-year average, (2) gasoline inventories were -8.0% below the 5-year average, and (3) distillate inventories were -21.7% below the 5-year average.  U.S. crude oil production in the week ended May 27 was unchanged w/w at 11.9 million bpd, which is -1.2 million bpd (-9.2%) 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 June 3 were unchanged at 574 rigs, just below the 2-year high of 576 rigs from May 20.  U.S. active oil rigs have risen sharply from the 16-1/2 year low of 172 rigs since Aug 2020, signaling an increase in U.S. crude oil production capacity.