Crude Gains after Weekly EIA Inventories Fall More Than Expected

Oct WTI crude oil (CLV22) on Wednesday closed up +1.15 (+1.23%), and Oct RBOB gasoline (RBV22) closed down -9.93 (-3.62%).  

Crude and gasoline prices Wednesday settled mixed, with crude climbing to a 3-week high.  Crude prices rose Wednesday on a larger-than-expected draw in weekly EIA crude inventories.  Gasoline retreated on news of weaker U.S. gasoline demand.

In a bullish factor, Bloomberg reported Monday that Saudi Arabian Oil Minister Prince Abdulaziz bin Salman said "extreme" volatility is disconnecting oil futures prices from fundamentals and that oil futures prices don't reflect the underlying fundamentals of supply and demand.  He added that the disconnect might require OPEC+ to tighten crude production when it meets next month.

Weakness in the crack spread is bearish for crude.  The crude crack spread fell to a 1-month low Wednesday, discouraging refiners from purchasing crude oil to refine into gasoline.

Signs of progress in nuclear talks with Iran are negative for crude oil prices.  President Biden Sunday spoke with EU leaders about "ongoing negotiations" to revive a nuclear deal with Iran, which could lead to the removal of oil sanctions on Iran and allow Iranian crude back into the global market.  The European Union said last Tuesday that it views Iran's response to a proposed blueprint for reviving the 2015 nuclear deal as constructive.  ING Bank said last Friday that the removal of oil sanctions on Iran could see Iran pump an additional 1.3 million bpd of crude oil.

Weakness in Chinese crude demand is bearish for prices.  Chinese refineries in July handled the least amount of oil since March 2020 as Covid lockdowns and refinery shutdowns for maintenance undercut crude demand.  As a result, China's apparent oil demand in July fell -9.7% y/y to 12.16 million bpd, and China's Jan-July apparent oil demand is down -4.6% y/y to 12.74 million bpd.  

In a bullish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week fell -5.6% w/w to 105.38 million bbls in the week ended August 19.

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.

Wednesday's EIA report was mixed.  On the bullish side, EIA crude inventories fell -3.28 million bbl, a larger draw than expectations of -2.50 million bbl.  Also, EIA distillate supplies unexpectedly fell -662,000 bbl versus expectations of a +1.0 million bbl build.  On the bearish side, EIA gasoline stockpiles fell -27,000 bbl, a smaller draw than expectations of -1.5 million bbl due to weakness in U.S. gasoline demand.  U.S. gasoline demand in the week ended Aug 19 was 8.434 million bpd, a drop of more than -900,000 bpd from the prior week.  Also, crude supplies at Cushing, the delivery point of WTI futures, rose +426,000 bbl to a 3-month high.  

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of August 19 were -6.6% below the seasonal 5-year average, (2) gasoline inventories were -7.9% below the seasonal -year average, and (3) distillate inventories were -23.9% below the 5-year seasonal average.  U.S. crude oil production in the week ended August 19 fell -100,000 bpd to 12.0 million bpd, which is only -1.1 million bpd (-8.4%) 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 August 19 were unchanged at 601 rigs, which is just four rigs below 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.

• Crude Oil and Gasoline Prices Fall on Weaker U.S. Gasoline Demand
• Crude Oil Gains on a Potential Cut in OPEC+ Crude Output
• Crude Oil Prices Rally as Saudi Arabia May Push for Reduced OPEC+ Output
• Crude Moderately Lower on Demand Concerns and Possible Iran Nuclear Deal