Crude Oil Prices Fall Sharply on Weak Global Manufacturing Reports

Sep WTI crude oil (CLU22) on Monday closed sharply lower by -4.73 (-4.80%), and Sep RBOB gasoline (RBU22) closed down -11.51 (-3.70%).  

Crude oil and gasoline prices Monday fell sharply 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 and China's July non-manufacturing PMI fell by -0.9 points to 53.8.  Meanwhile, Monday'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.

Crude oil prices Monday were also on the defensive due to the possibility that OPEC+ may take some action to boost production levels at its regular meeting this Wednesday.  Oil-production quotas 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 hike in production quotas, or least take action to boost actual production levels closer to the much higher production quotas.  

OPEC+ production has been running about 2.7 million bpd below quotas due to various supply disruptions and capacity constraints.  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 exports from Libya, home to Africa's largest oil reserves, dropped to a 20-month low of 610,000 bpd in June.  However, Libyan oil production is now on the rise.  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.

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.

In a bullish factor, Exxon Mobil CEO Woods said last 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."

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.

• Markets Wait to See if OPEC+ Raises Production Quotas at Wednesday’s Meeting
• Crude Oil Prices Fall Sharply on Weak Global Manufacturing Reports
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