Crude Falls on Dollar Strength and Recession Fears

Aug WTI crude oil (CLQ22) on Thursday closed down -0.52 (-0.54%), and Aug RBOB gasoline (RBQ22) closed down -4.69 (-1.45%).  

Crude oil and gasoline prices Thursday posted moderate losses, with crude sliding to a 4-1/2 month low and gasoline falling to a 3-month low.  A rally in the dollar index Thursday to a new 20-year high undercut energy prices.  Also, disappointing quarterly earnings results Thursday from big U.S. banks intensified fears about a recession and weighed on crude prices.  Crude recovered from its worst levels Thursday due to ongoing tightness in global oil supplies.

Thursday's global economic data was negative for economic growth and energy demand.  U.S. weekly initial unemployment claims unexpectedly rose +9,000 to an 8-month high of 244,000, showing a weaker labor market than expectations of unchanged at 235,000.  Also, Japan May industrial production was revised downward to -7.5% m/m from the previously reported -7.2% m/m, the weakest report in 2 years.

Thursday's action by the European Commission to cut its 2022 Eurozone GDP forecast to +2.6% from a May forecast of +2.7% was negative for energy demand and crude prices.

A jump in Covid infections around the world 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.  Also, Tokyo on Thursday raised the Covid infection alert to its highest level after it reported 16,878 new Covid infections Wednesday, up more than +400% from July 1.  In addition, the 7-day average of new U.S. Covid infections rose to a 5-month high of 137,006 Wednesday.  

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.

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 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 Slumps on Dollar Strength and Recession Fears
• Crude Oil Gains on Dollar Weakness and Global Oil Supply Concerns
• Crude Slightly Higher on Dollar Weakness and Global Oil Supply Concerns
• Crude Falls Sharply on Global Growth Concerns