Crude Climbs as China Eases Pandemic Restrictions

Aug WTI crude oil (CLQ22) this morning is up +1.06 (+0.97%), and Aug RBOB gasoline (RBQ22) is up +3.55 (+0.95%).  Aug Nymex natural gas (NGQ22) is up +0.108 (+1.65%).

Crude oil and gasoline prices this morning are moderately higher, with crude posting a 1-week high.  Crude is rallying today after China eased some pandemic restrictions, which could boost economic activity and energy demand in the world's largest crude importer.  However, a stronger dollar today is limiting the upside in energy prices.

Nat-gas prices this morning are moderately higher on the outlook for warmer than normal U.S. temperatures.  The Commodity Weather Group today said that above-normal temperatures are predicted in the Midwest and East from July 3-7, which should boost nat-gas demand from electricity providers to power increased air-conditioning usage.  

A bullish factor for crude was today's action by China to cut its mandatory quarantine period to 10 days from three weeks for inbound travelers.   The easing of travel restrictions should boost travel and fuel demand in China.

The prospect of additional crude supplies from OPEC appears limited and supports crude prices.  French President Macron told U.S. President Biden that he talked with United Arab Emirates (UAE) ruler Sheikh Mohammed bin Zayed who said the UAE and Saudi Arabia are already pumping about as much crude as they can.

Weaker-than-expected U.S. economic data today is bearish for crude demand and prices.  The Conference Board U.S. Jun consumer confidence index fell -4.5 to a 16-month low of 98.7, weaker than expectations of 100.0.  Also, the Jun Richmond Fed manufacturing survey unexpectedly fell -10 to a 2-year low of -19, weaker than expectations of an increase to -7.

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 reduced crude supplies from Libya after the country's state oil company said Monday that it might suspend crude exports and declare force majeure for crude from the Gulf of Sirte, which contains many of the country's oil export terminals amid a worsening political crisis.  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.

A reduction in crude supplies from Ecuador is bullish for prices after Ecuador's Energy Ministry said Monday that the country's oil production might halt entirely within 48 hours if roadblocks and vandalizing of oil wells continue.  Anti-government unrest has curbed crude production in Ecuador as the Energy Ministry said the country's oil production had dropped more than 50% below the average of 520,000 bpd.

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.

Weakness in the crude crack spread is bearish for crude prices.  The crack spread today dropped to a 1-month low, discouraging refiners from purchasing crude oil to refine it into gasoline.

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 fell last week, a bullish factor for crude 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 24 fell -15% w/w to 90.96 million bbl.

The outlook for a resumption of nuclear talks with Iran that could lead to the lifting of restrictions on Iranian crude exports is bearish for prices.  On Monday, Iran's Foreign Ministry said that talks to revive the 2015 nuclear deal with world powers would resume this week.

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 24 rose by +10 rigs to a 2-year high of 594 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 Surges Ahead of July Futures Expiration
• Crude Climbs on Global Supply Concerns
• Nat-Gas Weighed Down by Rising U.S. Inventories
• Crude Rallies on a Weak Dollar and Reduced Recession Concerns