Crude Oil Rallies on IEA Hike in Demand Forecast

Sep WTI crude oil (CLU22) today is up +1.20 (+1.31%), and Sep RBOB gasoline (RBU22) is down -0.0013 (-0.04%).  Sep nat gas (NGU22) is up +0.204 (+2.49%)

Oil prices are trading higher after the International Energy Agency (IEA) today raised its forecast for global crude oil demand this year. Crude oil prices are also seeing support from today's continued weakness in the dollar index.

Oil prices are shaking off Wednesday's bearish weekly EIA news that U.S. oil inventories last week rose by +5.5 million bbls and that U.S. oil production last week rose to a 2-1/4 year high.

In a bullish factor, the International Energy Agency (IEA) today raised its forecast for growth in global crude oil demand this year by +380,000 bpd from its previous forecast to 2.1 million bpd (+2% y/y), mainly due to expectations for utilities to increase their use of petroleum to fuel electricity plants because of the heat waves and soaring natural gas prices.  In a bearish factor, however, OPEC today said that it sees the global oil market tipping into a surplus this quarter.

In a bearish factor, the flow of Russian crude oil through the southern leg of the Druzhba pipeline through Ukraine to Hungary, Slovakia, and the Czech Republic was restarted late Wednesday after a Hungarian refinery made good on the need for Ukraine to pay transit fees.  The flow of crude oil in that pipeline was shut down last week because sanctions prevented the payment of the transit fee by Ukraine's oil pipeline company.  That pipeline carries about 250,000 bpd of oil and supplies key refineries.  However, the crude oil flows in the northern leg of the pipeline through Belarus to Poland and Germany were not affected.

In a bullish factor, the EIA, in its Short-Term Energy Outlook released on Tuesday, said that U.S. oil production in 2023 will rise by only +840,000 bpd y/y, less than its previous forecast for a rise of +860,000 y/y.  Still, the forecasted 2023 U.S. oil production level of 12.7 million bpd would be a record high, exceeding the current record of 12.3 million bpd posted in 2019.  The EIA said production problems for oil companies, such as surging costs and labor shortages, were behind its forecast for reduced production growth.  U.S. shale companies have not boosted production sharply in response to the surge in oil prices because shareholders have demanded that the companies limit their risks and focus on profits.  The EIA also cut its production forecast for 2022 to 11.86 million bpd.  The EIA expects global oil consumption in 2022 and 2023 to grow by +2.1 million bpd per year, although the EIA said there could be a downward revision for consumption if the global economy weakens.

Oil prices saw some downward pressure after Monday's news that nuclear talks with Iran have concluded for the time being, and that a draft accord has been reached that requires sign-off by the nation's two leaders within the next few weeks weeks.  However, the odds do not appear to be strong for a final agreement since there are still reportedly some outstanding issues.  An agreement would allow the return of Iranian oil supplies to the global oil market.

Crude oil prices last week found support after OPEC+ at its meeting last Wednesday said 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 markets were on guard for a possible larger increase in response to political pressure from the Biden administration.  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 +260,000 bpd to 29.050 million bpd, according to the IEA, 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 recently said that Libya's crude production should rise to 1.2 million bpd in 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 +3.1% w/w to 98.08 million bbls in the week ended August 5, recovering farther from the recent 6-month low.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of Aug 5 were -5.2% below the seasonal 5-year average, (2) gasoline inventories were -6.4% below the 5-year average, and (3) distillate inventories were -23.6% below the 5-year average.  U.S. crude oil production in the week ended Aug 5 rose 100,000 bpd to a 2-1/4 year high of 12.2 million bpd, which is only -0.9 million bpd (-6.9%) 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 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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