Crude Rallies on a Weak Dollar and Reduced Recession Concerns

Aug WTI crude oil (CLQ22) this morning is up +3.82 (+3.66%), and Aug RBOB gasoline (RBQ22) is up +7.39 (+2.02%).  July Nymex natural gas (NGN22) is down -0.029 (-0.46%).

Crude oil and gasoline prices this morning are sharply higher.  A weaker dollar (DXY00) today boosted energy prices along with comments from St. Louis Fed President Bullard, who said the U.S. consumer is healthy and fears of a recession are overblown.

Nat-gas prices this morning extended Thursday's losses down to a new 2-1/2 month low.   Negative carry-over from Thursday's EIA data that showed a bigger than expected build in weekly EIA nat-gas supplies is weighing on prices.  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. should see normal temperatures from June 29-July 3.

Crude prices garnered support today on easing inflation concerns, which may reduce the urgency of steeper rate hikes from the Fed.  Today's data showed the University of Michigan’s 5-10 year inflation expectations rate fell to 3.1% from a 14-year high of 3.3%.  

Recession fears eased today and gave crude prices a lift after today's data showed U.S. May new home sales unexpectedly rose +10.7% m/m to 696,000, stronger than expectations of a decline to 590,000.

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.

Wednesday’s comments from Citigroup were bearish for crude 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 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.

• Crude Falls Back on Energy Demand Concerns
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• Crude Slumps on Recession Fears