Crude Closes Higher on a Weak Dollar and Strong U.S Labor Market Data

Aug WTI crude oil (CLQ22) on Friday closed up +2.06 (+2.01%), and Aug RBOB gasoline (RBQ22) closed up +2.67 (+0.78%).  

Crude oil and gasoline prices Friday posted moderate gains.  A weaker dollar Friday was supportive of energy prices.

Also, Friday's U.S. monthly labor market data was stronger than expected, a positive factor for economic growth and energy demand.  June nonfarm payrolls rose +372,000, stronger than expectations of +265,000.  The June unemployment rate was unchanged at 3.6%, right on expectations.

Goldman Sachs, in a report Friday, said the plunge in crude prices this week to a 2-3/4 month low was exacerbated by technicals and low trading liquidity.  The report also said the global oil market is in structural deficit and needs higher prices to rebalance and that "this deficit will likely persist at current oil prices given the expected moderate recovery in Chinese demand and declines in Russian exports."

Increased stimulus from China supports crude prices after China's Ministry of Finance said Thursday that it was considering allowing local governments to sell 1.5 trillion yuan ($220 billion) of special bonds this year to finance infrastructure spending.

A positive factor for crude was Tuesday's action by Saudi Arabia to boost its price of crude for Asian customers by $2.80 a barrel for August delivery, a sign of strong demand.

A bullish factor for crude is reduced crude supplies from Libya after the country's state oil company last 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.  Last 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 June crude exports have declined over the past four months to a 20-month low of 610,000 bpd in June.

Lower OPEC crude production is supportive of prices.  Despite OPEC+ agreeing to an increase in crude output for July, OPEC July crude production fell for a second month as output fell -120,000 bpd to 26.6 million bpd.  Reduced Nigerian and Libyan crude output led to losses in OPEC production in June on damaged pipelines in Nigeria and political unrest in Libya.

OPEC+ last 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.

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 forcing its European customers to pay rubles for its oil and gas exports.

Concern that China could reimpose pandemic lockdowns is bearish for energy demand and prices after Shanghai launched mass testing for Covid in nine districts where new infections were found in the past two days.  Also, China reported 66 new Covid infections in Jiangsu province Tuesday, the second-biggest province for China's economic output.

The amount of crude held worldwide in floating storage on tankers increased last week, a bearish 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 July 1 rose +1.2% w/w to 92.51 million bbl.

Thursday's EIA report showed that (1) U.S. crude oil inventories as of July 1 were -10.8% below the seasonal 5-year average, (2) gasoline inventories were -9.1% below the 5-year average, and (3) distillate inventories were -21.3% below the 5-year average.  U.S. crude oil production in the week ended July 1 was unchanged at a 2-year high of 12.1 million bpd, -1.0 million bpd (-7.6%) below the Feb-2020 record-high of 13.1 million bpd.

Baker Hughes reported Friday that active U.S. oil rigs in the week ended July 8 rose by +2 rigs to a 2-1/4 year high of 597 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 Rallies on Strong U.S Labor Market Data
• Crude Sharply Higher on Prospects for Chinese Stimulus
• Crude Surges on the Prospects of Chinese Stimulus
• Crude Closes Lower on Dollar Strength and Recession Concerns