Crude Slips on Dollar Strength and a Mixed EIA Report

Aug WTI crude oil (CLQ22) this morning is down -1.08 (-1.04%), and Aug RBOB gasoline (RBQ22) is down -4.65 (-1.41%).  Aug Nymex natural gas (NGQ22) is up by +0.199 (+2.74%).

Crude oil and gasoline prices this morning are moderately lower.  A stronger dollar today is weighing on energy prices.  Also, a decline in the crack spread to a 3-month low today was bearish for crude prices.  Crude prices maintained moderate losses on a mixed weekly report from the EIA.

Aug natural gas prices this morning are moderately higher on forecasts for above-average U.S. temperatures to persist.  This will boost nat-gas demand from electricity providers to power more air-conditioning.  Maxar Technologies said today that above-normal temperatures are expected to linger from Texas to Maine from July 25-29, with record heat in the Pacific Northwest.  Also, extreme heat is seen persisting in the northern tier of the U.S. from July 30-August 3.

Global economic data today was weaker than expected and bearish for economic growth prospects and energy demand.  U.S. June existing home sales fell -5.4% m/m to a 2-year low of 5.12 million, weaker than expectations of 5.35 million.  Also, the Eurozone July consumer confidence indicator fell -3.2 to a record low of -27.0 (data from 1985), weaker than expectations of -24.9.

A bearish factor for crude was today’s report from Citigroup that warned a global recession is a “clear and present danger,” estimating a 50% probability of a recession over the next 12 to 18 months.

Today's decline in the crude crack spread to a 3-month low was a bearish factor.  The lower crack spread discourages refiners from purchasing crude oil to refine into gasoline.

The markets are waiting to see if OPEC+ will boost production beyond expected amounts at its upcoming meeting on August 3 in response to President Biden's recent trip to Saudi Arabia.  Oil-production limits still constrain all OPEC+ members, and an increase in output beyond current quotas would require unanimous agreement.  However, Saudi Arabia might prevail upon OPEC+ for a production hike in response to U.S. political pressure.

Lower OPEC crude production already 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.  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.

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 15 that has been stationary for at least a week fell -6.3% w/w to 85.28 million bbl, the lowest in 5 months.

A rise in Covid infections worldwide may lead to additional pandemic restrictions that curb economic activity and energy demand.  China reported 935 new Covid infections on Tuesday, the most in 8 weeks.  Already, nearly 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 fell to a 4-year low of 8.75 million bpd.  Also, Japan reported a record 110,680 new Covid infections Saturday.  In addition, the 7-day average of new U.S. Covid infections rose to a 5-month high of 136,234 on Sunday.  

Today's weekly EIA report was mixed for energy prices.  On the bearish side, crude supplies at Cushing, the delivery point for WTI futures, rose +1.14 million bbl.  Also, EIA gasoline supplies rose +3.5 million bbl, more than expectations of +1.0 million bbl.  On the bullish side,  EIA crude inventories unexpectedly fell -445,000 bbl versus expectations of a +2.0 million bbl build.  Also, EIA distillate stockpiles unexpectedly fell -1.3 million bbl versus expectations of a +1.6 million bbl build.  

Today's EIA report showed that (1) U.S. crude oil inventories as of July 15 were -8.3% below the seasonal 5-year average, (2) gasoline inventories were -3.6% below the 5-year average, and (3) distillate inventories were -22.7% below the 5-year average.  U.S. crude oil production in the week ended July 15 fell -0.8% w/w to 11.9 million bpd, -1.2 million bpd (-9.2%) 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 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 Recovers Early Losses on Dollar Weakness and Strength in Stocks
• Crude Falls Back on Expectations OPEC+ Will Announce an Increase in Output
• Crude Surges on Concern Saudi Arabia Won't Boost Crude Production
• Crude Rallies on Prospects for Global Oil Supplies to Remain Tight