Crude Close Lower on Energy Demand Concerns

Sep WTI crude oil (CLU22) on Friday closed down -1.65 (-1.71%), and Sep RBOB gasoline (RBU22) closed up +6.97 (+2.56%).  

Crude oil and gasoline prices on Friday settled mixed.  Crude oil prices gave up an early advance Friday and posted moderate losses on news of weakness in global manufacturing activity.  However, a slump in the dollar index Friday to a 2-1/2 week low was bullish for energy prices.  Also, supply concerns are supportive of crude prices on a slowdown of crude through the Keystone pipeline.  

Friday's global manufacturing data showed a slowdown in activity that was negative for energy demand and crude prices.  The U.S. July S&P Global manufacturing PMI fell -0.4 to a 2-year low of 52.3.  Also, the Eurozone July S&P Global manufacturing PMI fell -2.5 to a 2-year low of 49.6.  In addition, the Japan July Jibun Bank manufacturing PMI fell -0.5 to a 10-month low of  52.2.

An increase in crude production from Libya is bearish for crude prices.  Libyan Oil Minister Mohammed Oun said Friday that Libya's crude production now stands at 800,000 bpd and will climb to 1.2 million bpd in a week to 10 days.  Libya's crude output beginning in April collapsed after protesters forced the closure of several oil fields and ports.  As a result, crude exports from Libya, home to Africa's largest oil reserves, dropped to a 20-month low of 610,000 bpd in June.

Crude prices garnered some support Friday on supply concerns after TC Energy reduced operating rates on a segment of the Keystone pipeline running from Canada's oil sands to the hub in Cushing, Oklahoma, by about 15% following a power-supply disruption.  That will reduce crude supplies at Cushing, the delivery point of WTI futures.

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 is supportive of oil 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 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.  

Wednesday'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 Friday that active U.S. oil rigs in the week ended July 22 were unchanged at 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 Moderately Higher on Dollar Weakness and Supply Disruptions
• Crude Sinks on Demand Concerns and Increased Production in Libya
• Crude Prices Fall on Demand Concerns and Ramped-Up Output in Libya
• Crude Posts Moderate Losses on Dollar Strength and Mixed EIA Report