Crude Jumps on Dollar Weakness and Tight Global Oil Supplies

Sep WTI crude oil (CLU22) this morning is up +5.02 (+5.21%), and Sep RBOB gasoline (RBU22) is up +12.27 (+3.96%).  Sep Nymex natural gas (NGU22) is up by +0.088 (+1.08%).

Crude oil and gasoline prices this morning are sharply higher and posted 2-1/2 week highs.  A fall in the dollar index today (DXY00) to a 3-1/2 week low supports energy price gains.  Crude also rose today on comments from the CEO of Exxon Mobil, who said he doesn't see any signs of major fuel demand destruction.  

Sep natural gas prices this morning are moderately higher.  Forecasts for above-average U.S. temperatures that will boost nat-gas demand from electricity providers to provide power for air-conditioning are lifting prices today.  Maxar Technologies said today that above-normal temperatures are expected for the Eastern U.S. from August 3-7.

Today's global economic data was mixed for energy demand and crude prices.  On the positive side, U.S. June personal spending rose +1.1% m/m, slightly stronger than expectations of +1.0% m/m.  Also, Eurozone Q2 GDP rose +0.7% q/q and +4.0% y/y, stronger than expectations of +0.2% q/q and +3.4% y/y.  In addition, Japan June industrial production rose a record +8.9% m/m, stronger than expectations of +4.2% m/m.  On the negative side, the U.S. July MNI Chicago PMI fell -3.9 to a nearly 2-year low of 52.1, weaker than expectations of 55.0.  Also, Japan Jun retail sales unexpectedly fell -1.4% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 14 months.

Exxon Mobil CEO Woods said today that global energy demand has recovered to "near" pre-pandemic level, and he doesn't see any signs of major fuel demand destruction.  He also said that he expects a "tighter market" for petroleum products and "to lower prices, the industry needs to increase investment and catch up to recovering demand."

An increase in crude production from Libya is bearish for crude prices.  Libyan Oil Minister Mohammed Oun said Monday 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.

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, in response to U.S. political pressure, Saudi Arabia might prevail upon OPEC+ for a production hike.

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 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.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of July 22 were -8.6% below the seasonal 5-year average, (2) gasoline inventories were -4.6% below the 5-year average, and (3) distillate inventories were -23.1% below the 5-year average.  U.S. crude oil production in the week ended July 22 rose +1.7% w/w and matched its 2-year high of 12.1 million bpd, -1.0 million bpd (-7.6%) 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.
 

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