Crude Oil Prices Fall Sharply on Weak Global Manufacturing Reports

Sep WTI crude oil (CLU22) today is sharply lower by -4.980 (-4.97%), and Sep RBOB gasoline (RBU22) is down -0.1540 (-4.95%).

Crude oil and gasoline prices are sharply lower after the weekend Chinese PMI figures sparked increased concern about weaker Chinese economic growth and energy demand.  China’s July manufacturing PMI, reported on Saturday, fell -1.2 points to 49.0, which was weaker than expectations for a slight +0.1 point increase to 50.3.  China’s July non-manufacturing PMI fell by -0.9 points to 53.8, which was slightly weaker than expectations for a -0.8 point decline to 53.9.  Meanwhile, today's July U.S. ISM manufacturing index fell -0.2 to a 2-year low of 52.8, although that was at least stronger than expectations of a -1.0 point decline to 52.0.  

Sep natural gas prices (NGU22) are down -0.311 (-3.78%) on expectations for some relief from the recent scorching U.S. weather and on news that U.S. nat-gas production rose to a new record weekly high.

Exxon Mobil CEO Woods said Friday 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."

The markets are waiting to see if OPEC+ at its meeting this Wednesday will boost production 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.

A recent increase in crude production from Libya is bearish for crude prices.  Libyan Oil Minister Mohammed Oun said last 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.

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 bearish factor, Vortexa reported Monday that the amount of crude stored on tankers in the week ended July 29 (that has been stationary for at least a week) rose +4.2% w/w to 86.83 million bbls, recovering from the previous week's 6-month low.

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 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 29 rose by +6 rigs to a new 2-1/4 year high of 6059 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.
 

• Nat-Gas Prices Climb on Above-Normal U.S. Temps
• Crude Jumps on Dollar Weakness and Tight Global Oil Supplies
• Nat-Gas Prices Tumble on Forecasts for Milder U.S. Temperatures
• Crude Slightly Higher on Tight Supplies