Crude Erases Early Gains as U.S. Gasoline Demand Falters

Aug WTI crude oil (CLQ22) this morning is down -0.03 (-0.03%), and Aug RBOB gasoline (RBQ22) is down -11.23 (-2.92%).  Aug Nymex natural gas (NGQ22) is down -0.054 (-0.82%).

Crude oil and gasoline prices this morning are lower, with crude falling back from a 1-1/2 week high.  Crude prices this morning initially rose after weekly EIA inventories fell more than expected.  However, signs that record-high gasoline prices are causing demand destruction weighed on prices.  Also, a rally in the dollar index today (DXY00) to a 1-1/2 week high is weighing on energy prices.

Nat-gas prices this morning gave up an early advance and turned lower on a mixed U.S. weather forecast, which should reduce nat-gas demand from electricity providers to power increased air-conditioning usage.  The National Oceanic and Atmospheric Administration (NOAA) said today that below-normal temperatures are expected for the U.S. West Coast and Northeast, and above-normal temperatures are expected in the U.S. South and Midwest from July 6-12.

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 possible.

Weaker-than-expected global economic data today is bearish for crude demand and prices.  U.S. Q1 GDP fell -1.6% (q/q annualized), weaker than expectations of -1.5% and the steepest pace of contraction since Q2 of 2020.   Also, Eurozone Jun economic confidence fell -1.0 to a 15-month low of 104.0.  In addition, the Japan Jun consumer confidence index unexpectedly fell -2.0 to a 17-month low of 32.1.

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 oil and gas activities in the east of Libya are being shut down" due to armed government protesters.  As a result, 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.

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.

Today's EIA data was mixed for energy prices.  On the positive side,  EIA crude inventories fell -2.76 million bbl, a bigger draw than expectations of -950,000.  Also, crude supplies at Cushing, the delivery point of WTI futures, fell -782,000 bbl to a 7-1/2 year low of 21.26 million bbl.  On the negative side, EIA gasoline stockpiles rose +2.65 million bbl on weak demand as the four-week average of U.S. gasoline demand the week of Jun 24 fell below 9.0 million bpd, the lowest seasonal level since 2014 (with the exception of the pandemic 2020 year).  Also, U.S crude production the week of Jun 24 rose to 12.1 million bpd, the most in 2 years.

Today's weekly EIA report showed that (1) U.S. crude oil inventories as of June 24 were -13.3% below the seasonal 5-year average, (2) gasoline inventories were -8.4% below the 5-year average, and (3) distillate inventories were -20.6% below the 5-year average.  U.S. crude oil production in the week ended June 24 rose +0.8% w/w to a 2-year high of 12.1 million bpd, which is -1.0 million bpd (-7.6%) 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.

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