Crude Oil Prices Fall on Concern About U.S. Demand

July WTI crude oil (CLN22) on Friday closed -0.84 (-0.69%), and July RBOB gasoline (RBN22) closed down -10.40 (-2.43%).

Crude oil prices fell on concern about U.S. and Chinese energy demand.  In China, there is concern that new Covid lockdowns will continue to hurt Chinese demand for crude oil.  In the U.S., Friday's CPI and consumer sentiment reports sparked fear of a sharp cutback in consumer spending and a possible U.S. recession in 2023.  U.S. consumer sentiment fell to a record low for the series (data since 1977), illustrating consumer concern about inflation and high gasoline prices.

Comments Wednesday from UAE Energy Minister Suhail Al-Mazrouei were supportive of crude prices when he said oil prices are "nowhere near" a peak yet because Chinese demand has yet to return to normal.

Comments Wednesday from OPEC Secretary-General Barkindo were bullish for crude when he said, "there is a massive investment deficit in the oil industry, which needs to be reversed urgently."  He added that OPEC has little spare production capacity, "with the exception of 2-3 members, all are maxed out."

A bullish factor for crude was Tuesday's news that gunmen stormed Libya's Sharara oil field, the country's biggest, and forced workers to stop operations.  The oil field had only just reopened Sunday after production was halted for two months when armed government protesters forced a stop in crude oil 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.

China announced weekend lockdowns in parts of Shanghai for mass Covid testing after some new cases.  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 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 Monday 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.

Wednesday's weekly EIA report showed that (1) U.S. crude oil inventories as of June 3 were -14.8% below the seasonal 5-year average, (2) gasoline inventories were -9.5% below the 5-year average, and (3) distillate inventories were -22.6% below the 5-year average.  U.S. crude oil production in the week ended June 3 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 Friday that active U.S. oil rigs in the week ended June 10 rose by +6 rigs to a 2-1/4 year high of 580 rigs.  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.