Crude Oil Gains on Dollar Weakness and Global Oil Supply Concerns

Aug WTI crude oil (CLQ22) on Wednesday closed up +0.46 (+0.48%), and Aug RBOB gasoline (RBQ22) closed down -3.09 (-0.95%).  

Crude oil and gasoline prices on Wednesday settled mixed, with gasoline falling to a 2-1/2 month low.  Crude prices Wednesday rebounded from a 2-3/4 month low and moved higher as a weaker dollar sparked short-covering in crude oil futures.  Also, global crude supply concerns remain elevated after Libya's crude exports in June fell to a 20-month low.

Gasoline prices were under pressure Wednesday after weekly EIA data showed that a decline in U.S. gasoline demand led to an unexpected build in weekly EIA gasoline inventories.

Wednesday's global economic data was supportive of economic growth and energy demand.  For example, China June exports rose +17.9% y/y, stronger than expectations of +12.5% y/y and the biggest increase in 5 months.  Also,  Eurozone May industrial production rose +0.8% m/m, stronger than expectations of +0.3% m/m and the biggest increase in 5 months.  In addition, the +9.1% y/y increase in U.S. June CPI, the most in 41 years, may prompt investors to purchase crude as an inflation hedge.

The political chaos in Libya is worsening the global crude supply crisis.  Libya's crude output has collapsed since mid-April after protesters forced the closure of several oil fields and ports.  Crude exports from Libya, home to Africa's largest oil reserves, dropped to a 20-month low of 610,000 bpd in June.

A bearish factor for crude was Wednesday's forecast from Bank of America for a "mild recession this year" in the U.S., saying service spending is slowing and surging inflation is spurring consumers to pull back spending plans.

A jump in Covid infections in China and Japan may lead to additional pandemic restrictions that curb economic activity and energy demand.  Already, close to 30 million people are under some form of movement restrictions in China as the government maintains its strict Covid-Zero strategy.  The lockdowns have hurt Chinese crude demand and are bearish for prices as China June crude imports were only 8.75 million bpd, the lowest in 4 years.

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.

Wednesday's weekly EIA data was bearish for energy prices.  EIA crude inventories unexpectedly rose +3.25 million bbl to a 7-month high versus expectations of a -1.50 million bbl decline.  Also, EIA gasoline supplies unexpectedly rose +5.83 million bbl versus expectations of a -1.0 million bbl draw after U.S. gasoline demand the week of July 8 fell to a 6-month low of 8.06 million bpd.  In addition, EIA distillate stockpiles rose +2.67 million bbl, above the consensus of +1.70 million bbl.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of July 8 were -8.9% below the seasonal 5-year average, (2) gasoline inventories were -5.6% below the 5-year average, and (3) distillate inventories were -21.2% below the 5-year average.  U.S. crude oil production in the week ended July 8 fell -0.8% w/w to 12.0 million bpd, -1.1 million bpd (-8.4%) 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 Slightly Higher on Dollar Weakness and Global Oil Supply Concerns
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• Crude Oil Falls on Dollar Strength and Chinese Demand Concerns