Crude Oil Prices Partially Recover After Monday's Decline

Sep WTI crude oil (CLU22) today is up +0.70 (+0.75%), and Sep RBOB gasoline (RBU22) is up +0.0645 (+2.15%).  Sep natural gas (NGU22) is sharply lower by -0.399 (-4.82%) on weather factors and record output.

Crude oil and gasoline prices today higher on a partial recovery from Monday's sharp losses when Sep crude oil fell by -4.80%.  Oil prices Monday fell on weak weekend Chinese PMI reports and on caution ahead of Wednesday's OPEC+ meeting.

There is a chance OPEC+ at its regular monthly meeting on Wednesday may take some action to boost production levels.  A Bloomberg survey of energy analysts found that 13 of 23 respondents expect OPEC+ to leave production unchanged, while the other respondents expect increases ranging from 200,000 bpd to 1 million bpd.

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 at least take some action to boost actual production levels closer to the much higher production quotas.  

OPEC+ production in July rose by +270,000 bpd to 29.050 million bpd, but is still running more than 2 million bpd below quotas due to various supply disruptions and capacity constraints.  Nigerian and Libyan crude output has fallen in recent months due to damaged pipelines in Nigeria and political unrest in Libya, undercutting the overall OPEC+ production level.  Crude oil 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 Minister Mohammed Oun said last Monday that Libya's crude production should rise to 1.2 million bpd by early August as oil facilities are brought back on line.

In a bearish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week rose +4.2% w/w to 86.83 million bbls in the week ended July 29, 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.

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