Aug WTI crude oil (CLQ22) on Thursday closed down -4.02 (-3.66%), and Aug RBOB gasoline (RBQ22) closed down -18.70 (-5.02%).
Crude oil and gasoline prices Thursday closed sharply lower, with gasoline falling to a 1-3/4 month low. Concerns that energy demand will suffer as the economy slows are undercutting energy prices. Crude prices extended their losses Thursday after President Biden said he would ask U.S. allies in the Persian Gulf region to boost oil production when he meets with them during a trip to Saudi Arabia next month.
Weaker-than-expected global economic data Thursday signals weakness in the economy that is bearish for crude demand and prices. U.S. May personal spending rose +0.2% m/m, weaker than expectations of +0.4% m/m. Also, the U.S. Jun MNI Chicago PMI fell -4.3 to a 1-3/4 year low of 56.0, weaker than expectations of 58.0. In addition, the China Jun manufacturing PMI rose +0.6 to 50.2, weaker than expectations of 50.5. Finally, Japan May industrial production fell -7.2% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 2 years.
Crude prices retreated further Thursday after President Biden said he would ask for more crude production from the broader Gulf Cooperation Council forum, a gathering of oil-rich countries along the Persian Gulf, instead of asking Saudi Arabia to boost crude production when he travels there July 16 directly. Saudi Arabia and the United Arab Emirates are the only two members with the capacity to boost crude output meaningfully.
OPEC+ on Thursday ratified plans to hike crude output by 648,000 bpd in August, restoring the final tranche of the 9.7 million bpd that was shuttered two years ago. The decision is largely symbolic, however, with most OPEC+ countries unable to boost their output due to capacity constraints.
Gasoline prices also have a negative carry-over from Wednesday when the EIA reported gasoline stockpiles rose +2.65 million bbl due to 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 (except for the 2020 pandemic year).
Weakness in the crack spread is bearish for crude prices. The crude crack spread Thursday fell to a 1-month low, which discourages refiners from purchasing crude to refine it into gasoline.
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 Wednesday said it suspended crude exports from two of its ports, declaring force majeure at Es Sider and Ras Lanuf, Libya's largest and third-biggest crude export terminals. On Monday, Libya said 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.
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.
Wednesday'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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