Crude Rallies on Dollar Weakness and Tight Global Oil Supplies

July WTI crude oil (CLN22) this morning is up +2.57 (+2.35%), and July RBOB gasoline (RBN22) is up +12.40 (+3.27%).  July Nymex natural gas (NGN22) is down -0.102 (-1.44%).

Crude oil and gasoline prices this morning are moderately higher.  A weaker dollar today is supporting energy prices along with tight global supplies.  A rally in stocks today also shows confidence in the bullish economic outlook for energy demand.

Nat-gas prices this morning extended last Friday's losses down to a 6-week low.  Nat-gas prices are lower on the outlook for rising U.S. nat-gas inventories due to reduced exports.  Freeport LNG last Friday declared force majeure on its LNG shipments loading from its fire-damage export plant until the first week of September.  Nat-gas prices are also lower on the outlook for cooler U.S. temperatures will reduce nat-gas demand to power air-conditioners.  The Commodity Weather Group today said that most Central and Southern U.S. states are set to see milder temperatures from June 26-30.

Comments today from the CEO of Exxon Mobil were bullish for crude prices when he warned that global oil markets might remain tight for another three to five years primarily because of a lack of investment since the pandemic began.

A supportive factor for crude oil prices is the reopening of China's economy after the recent pandemic lockdowns.  Beijing and Shanghai are slowly reopening their economies as the pace of new Covid infections eases, which should spark a pickup in economic activity and energy demand.

Strength in the crack spread is positive for crude prices.  The crude crack spread today rose to a 2-week high, which encourages refiners to boost their purchases of crude oil to refine into gasoline.

A bullish factor for crude is Libya's sharp drop in crude output.  The country's oil minister said last Monday that Libya's crude output fell to 100,000 bpd, down by about -1.1 million bpd, as "almost all the oil and gas activities in the east of Libya are being shut down" due to armed government protesters.  Libya’s May crude production fell -140,000 bpd to 760,000 bpd, the smallest amount in 1-1/2 years.

Crude prices have support after EU leaders recently 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.

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 has already halted natural gas shipments to Demark, Finland, Bulgaria, the Netherlands, and Poland and reduced supplies to Germany for not paying for Russian gas 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 was little changed last week.  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 17 was unchanged w/w at 102.45 million bbl.

Last Wednesday's weekly EIA report showed that (1) U.S. crude oil inventories as of June 10 were -14.3% below the seasonal 5-year average, (2) gasoline inventories were -10.4% below the 5-year average, and (3) distillate inventories were -22.5% below the 5-year average.  U.S. crude oil production in the week ended June 10 rose +0.8% w/w to a 2-year high of 12.0 million bpd, which is -1.1 million bpd (-8.4%) 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 17 rose by +4 rigs to a 2-year high of 584 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.

• Nat-Gas Sharply Lower as Reduced U.S. LNG Exports to Boost Inventories
• Crude Plunges as an Aggressive Fed will Slow the Economy and Energy Demand
• Nat-Gas Closes Higher on U.S. Heat and Soaring European LNG Prices
• Crude Falls on Concern Slowing Global Economy will Curb Energy Demand