Crude Oil Moves Higher on Strong Economic Data

Sep WTI crude oil (CLU22) on Friday closed up +0.47 (+0.53%), and Sep RBOB gasoline (RBU22) closed up +6.21 (+2.22%).  

Crude oil and gasoline prices on Friday recovered from early losses and closed moderately higher.  Strength in Friday's global economic data was bullish for energy demand and crude prices.  A rally in the dollar Friday to a 1-week high was bearish for energy prices.  

Friday's U.S. payroll report showed economic strength that is positive for energy demand.  U.S. July nonfarm payrolls rose +528,000, stronger than expectations of +250,000 and the biggest increase in 5 months.  Also, the July unemployment rate fell -0.1 to 3.5%, matching a five-decade low and showing a stronger labor market than expectations of unchanged at 3.6%.

Friday's data showed Eurozone industrial activity was stronger-than-expected, which is bullish for crude prices.  German June industrial production unexpectedly rose +0.4% m/m, stronger than expectations of -0.3% m/m.  Also, France June industrial production unexpectedly rose +1.4% m/m, stronger than expectations of -0.3% m/m and the biggest increase in 5 months.

A bearish factor for crude prices is the demand destruction in gasoline caused by the recent surge in gasoline prices to a record high.  The EIA reported that the four-week average of U.S. gasoline consumption fell to a 6-month low of 8.592 million bpd in the week ended July 29, which is 1 million bpd below the pre-Covid seasonal norm.

A supportive factor for crude prices was Wednesday's announcement from OPEC+ 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 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 Friday that active U.S. oil rigs in the week ended Aug 5 fell by -7 rigs to 598 rigs, falling back from the July 29th 2-1/4 year high of 605 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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