Crude Oil Falls on Dollar Strength and Chinese Demand Concerns

Aug WTI crude oil (CLQ22) today is down -1.99 (-1.90%), and Aug RBOB gasoline (RBQ22) is down -0.0394 (-1.14%).  

Aug natural gas prices (NGQ22) today are up +0.526 (+8.72%) on searing heat predictions for much of the U.S., which will boost air-conditioning demand.  Also, there is concern about supply disruptions after an explosion on Saturday at Oneok's natural gas liquids facility in Oklahoma.  Nat-gas also has support from tight U.S. nat-gas inventories, which are -12.2% below the seasonal average.

Crude oil and gasoline prices are sharply lower on today's +1% rally in the dollar index to a new 20-year high.  Crude oil prices are also trading lower on today's fairly sharp sell-off in U.S. stocks and on continued concern about new Chinese lock-downs due to Covid outbreaks.  There were 69 Covid infections reported in Shanghai on Sunday, the highest since late May.

Crude oil prices are also trading lower after a court in the Krasnodar region today canceled an order by the Russian government to suspend shipments of crude oil from the CPC terminal on Russia's Black Sea Coast.  That order was seen as an attempt by the Russian government to halt shipments of Kazakh crude oil to Europe to punish Europe for its sanctions on Russia.  The terminal ships 1.2 million barrels per day of oil to Europe.

Lower OPEC crude production is supportive of prices.  Despite OPEC+ agreeing to a +648,000 bpd 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 caused by damaged pipelines in Nigeria and political unrest in Libya.

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.

In a bullish factor, Vortexa reported Monday that the amount of crude stored on tankers in the week ended July 8 that have been stationary for at least a week fell -13% w/w to 82.09 million bbl.

Last 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 last 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.
 

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