Crude Closes Moderately Higher on Dollar Weakness and Strength in Stocks

Aug WTI crude oil (CLQ22) on Friday closed up +1.81 (+1.89%), and Aug RBOB gasoline (RBQ22) closed up +2.64 (+0.83%).

Crude oil and gasoline prices Friday closed moderately higher.  Weakness in the dollar Friday boosted energy prices, along with strength in equities, which shows confidence in the economic outlook and energy demand.  Crude also moved higher Friday on expectations that President Biden will leave his trip from Saudi Arabia without announcing an increase in oil supplies from Middle Eastern producers.  Crude prices fell back from their best levels Friday after weekly data from Baker Hughes showed active U.S. oil rigs rose to a 2-1/4 year high, which should lead to an increase in future U.S. crude production.

Crude prices rallied Friday after U.S. officials said President Biden would leave his trip to the Middle East with no announcement on any agreement from Saudi Arabia that it would boost its crude production levels.  All OPEC+ members are still constrained by oil-production limits, and to increase output beyond current quotas would require unanimous agreement.  OPEC+ is scheduled to meet next on August 3 to discuss its production policy for September and beyond.

Friday's global economic data was mixed for economic growth and energy demand.  On the positive side, U.S. June retail sales rose +1.0% m/m and +1.0% m/m ex-autos, stronger than expectations of +0.9% m/m and +0.7% m/m ex-autos.  Also, the University of Michigan U.S. July consumer sentiment unexpectedly rose +1.1 to 51.1, stronger than expectations of no change at 50.0.  On the bearish side, U.S. June manufacturing production fell -0.5% m/m, weaker than expectations of -0.1% m/m.  Also, China's Q2 GDP of -2.6% q/q and +0.4% y/y was weaker than expectations of -2.0% q/q and +1.2% y/y.

A jump in Covid infections around the world may lead to additional pandemic restrictions that curb economic activity and energy demand.  China reported 432 new Covid infections Thursday, the most in 7 weeks.  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 1-1/4 month high of 130,378 Thursday.  

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 Friday that active U.S. oil rigs in the week ended July 15 rose by +2 rigs to a 2-1/4 year high of 599 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 Gains on Dollar Weakness and Strength in Stocks
• Crude Falls on Dollar Strength and Recession Fears
• Crude Slumps on Dollar Strength and Recession Fears
• Crude Oil Gains on Dollar Weakness and Global Oil Supply Concerns