Crude Falls Sharply on Global Growth Concerns

Aug WTI crude oil (CLQ22) on Tuesday closed down -8.25 (-7.93%), and Aug RBOB gasoline (RBQ22) closed down -19.76 (-5.71%).  

Crude oil prices Tuesday sold off sharply.  A rally in the dollar index to a new 20-year high Tuesday weighed on energy prices.  Also, concern that a flare-up in Covid infections will undercut global economic activity and energy demand has prompted fund selling in energy futures.

A jump in Covid infections in China and Japan may lead to additional pandemic restrictions that curb economic activity and energy demand.  Shanghai reported 59 new Covid infections Monday, the fourth day in a row case numbers have stayed above 50.  The jump in new cases has triggered two additional rounds of mass testing this week across 9 of Shanghai’s 16 districts.  Already, close to 30 million people are under some form of movement restrictions in China as the government maintains its strict Covid-Zero strategy.  Also, Tokyo on Tuesday reported 11,511 new coronavirus cases, more than double from a week ago and the most in 4 months.

Crude oil prices were also undercut after a court in the Krasnodar region on Monday 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 the OPEC+ agreement to raise crude oil output, OPEC crude production in June fell by -120,000 bpd to 26.6 million bpd.  Nigerian and Libyan crude output fell in June due to damaged pipelines in Nigeria and political unrest in Libya, undercutting the overall OPEC+ production level.

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 has been stationary for at least a week fell -13% w/w to 82.09 million bbl.

Crude prices fell nearly -50 cents/bbl from their Tuesday afternoon closing level after the API reported that U.S. crude supplies last week jumped +4.762 million bbl.  The consensus is that Wednesday's weekly EIA crude inventories will fall -1.5 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.
 

• Crude Tumbles on Global Growth Concerns
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