Crude Oil Sharply Lower as Weekly EIA Inventories Unexpectedly Climb

Sep WTI crude oil (CLU22) on Wednesday closed down -3.76 (-3.98%), and Sep RBOB gasoline (RBU22) closed down -14.45 (-4.73%).

Crude oil and gasoline prices Wednesday erased an early rally and closed sharply lower after weekly EIA crude inventories unexpectedly increased.  Crude prices Wednesday morning initially moved higher after OPEC+ agreed to boost its crude production levels for September by only 100,000 bpd.

Global economic data Wednesday was mixed for energy demand and prices.  On the bearish side, Eurozone June retail sales unexpectedly fell -1.2% m/m, weaker than expectations of unchanged and the sharpest decline in 6 months.  Conversely, the U.S. July ISM services index unexpectedly rose +1.4 to 56.7, stronger than expectations of a decline to 53.5.  Also, U.S. June factory orders rose +2.0% m/m, stronger than expectations of +1.2% m/m and the biggest increase in 5 months.

Crude prices Wednesday morning pushed higher briefly after OPEC+ announced that it would boost its crude production target for September by only 100,000 bpd, well below the 600,000 bpd it announced for July and August.  The added production will most likely be met by Saudi Arabia and the United Arab Emirates, the only members among the 23-nation alliance that have any significant amount of excess production capacity.

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.

Wednesday's weekly EIA report was mixed for energy prices.  On the bearish side, EIA crude inventories unexpectedly rose +4.47 million bbl versus expectations of a -1.5 million bbl decline.  Also, EIA gasoline supplies unexpectedly rose +163,000 bbl versus expectations of a -1.5 million bbl decline.  In addition, crude supplies at Cushing, the delivery point for WTI futures, rose +926,000 bbl.  On the positive side, EIA distillate stockpiles unexpectedly fell -2.4 million bbl versus expectations of a +1.0 million bbl increase.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of July 29 were -6.8% below the seasonal 5-year average, (2) gasoline inventories were -3.8% below the 5-year average, and (3) distillate inventories were -24.7% below the 5-year average.  U.S. crude oil production in the week ended July 29 was unchanged at 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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