Crude Closes Higher on Dollar Weakness and Tight Global Oil Supplies

July WTI crude oil (CLN22) on Tuesday closed up +1.09 (+0.99%), and July RBOB gasoline (RBN22) closed up +0.15 (+0.04%).  

Crude oil and gasoline prices Tuesday closed moderately higher.  A weaker dollar Tuesday supported energy prices along with tight global supplies.  A rally in stocks Tuesday also showed confidence in the economic outlook that is bullish for energy demand.

Comments Tuesday 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.

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.
 

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• Crude Plunges as an Aggressive Fed will Slow the Economy and Energy Demand
• Crude Closes Higher on Dollar Weakness and Tight Global Energy Supplies