Crude Oil Rallies on Dollar Weakness

Sep WTI crude oil (CLU22) this morning is up +1.79 (+1.89%), and Sep RBOB gasoline (RBU22) is up +8.39 (+2.77%).  Aug Nymex natural gas (NGQ22) is up by +0.337 (+4.06%).

Crude oil and gasoline prices this morning are moderately higher.  A weaker dollar today is giving energy prices a lift.  However, gains in crude are limited by an increase in Libyan crude production, along with today's weaker than expected global economic data that was bearish for energy demand.  

Aug natural gas prices this morning extended last Friday's rally to a 6-week high and are sharply higher.  Nat-gas prices are higher on forecasts for hot U.S. temperatures that will boost nat-gas demand from electricity providers to fuel more air-conditioning.  Maxar Technologies said today that hotter-normal temperatures are expected for the U.S. West Coast and Northeast from July 30-August 1 and that above-normal temperature are expected across most of the U.S. from August 4-8.

An increase in crude production from Libya is bearish for crude prices.  Libyan Oil Minister Mohammed Oun said today that Libya's crude production has risen to above 1.0 million bpd and will reach 1.2 million bpd in early August.  Libya's crude output 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.

Today's global manufacturing data showed a slowdown in activity that was negative for energy demand and crude prices.   The U.S. June Chicago Fed national activity index was unchanged at a 16-month low of -0.19, weaker than expectations of 0.00.  Also, the U.S. July Dallas Fed outlook for manufacturing activity index fell -4.9 to a 2-year low of -22.6, weaker than expectations of -18.5.  The German July IFO business climate index fell -3.6 to a 2-year low of 88.6, weaker than expectations of 90.1.

Today's action by Japan's Cabinet Office today cut its Japan 2022 GDP forecast to 2.0% from a January estimate of 3.2% was bearish for energy demand and crude prices.

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 today that the amount of crude stored on tankers in the week ended July 22 that has been stationary for at least a week fell -1.9% w/w to 83.24 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.  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.

Last 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 last 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 Close Lower on Energy Demand Concerns
• 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