Crude Slides on Energy Demand Concerns

Aug WTI crude oil (CLQ22) this morning is down -0.96 (-0.90%), and Aug RBOB gasoline (RBQ22) is down -4.05 (-1.09%).  July Nymex natural gas (NGN22) is down -0.519 (-7.57%).

Crude oil and gasoline prices this morning are moderately lower.  A stronger dollar today is weighing on crude prices along with weaker than expected global economic data that is negative for energy demand.  Crude prices are also under pressure after Wednesday afternoon's weekly API data showed that U.S crude supplies surged by +5.607 million bbl last week.  Today's weekly EIA inventory report will not be released after electricity issues at the EIA caused hardware failure.  The EIA said there were no estimates on when the data will be released.

Nat-gas prices this morning tumbled to a 2-1/2 month low on a bigger than expected build in weekly EIA nat-gas supplies.  The EIA reported that weekly nat-gas inventories rose +74 bcf last week, above the consensus of +62 bcf.  Also, signs of normal U.S. weather that will curb nat-gas demand from electricity providers to power air-conditioning are bearish for prices after Atmospheric G2 said today that most of the U.S. is expected to face normal temperatures from June 28-July 2.

Today's global manufacturing data was weaker than expected and bearish for energy demand and crude prices.   The U.S. Jun S&P Global manufacturing PMI fell -4.6 to a nearly 2-year low of 52.4, weaker than expectations of 56.0.  Also, the Eurozone Jun S&P Global manufacturing PMI fell -2.6 to a 1-3/4 year low of 52.0, weaker than expectations of 53.8.  

Wednesday comments from Citigroup were bearish for crude oil prices when they said in a note to clients that "given the strong headwinds to growth resulting from both higher prices of commodities and central bank actions, we project a trendline downward in oil prices through 2023 and in all likelihood beyond that."

In a supportive factor for gasoline prices, the CEO of Phillips 66 said Wednesday, "there's no great relief coming in refining capacity," as U.S. fuel makers remain wary of making investments to significantly boost production as the transition to electric vehicles continues to pose a long-term threat to gasoline demand.

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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