Crude Oil Prices Retreat on Global Energy Demand Concerns

Oct WTI crude oil (CLV22) on Thursday closed down -2.37 (-2.50%), and Oct RBOB gasoline (RBV22) closed up +0.54 (+0.20%).  

Crude and gasoline prices Thursday settled mixed.  Global energy demand concerns weighed on crude prices after UBS said Thursday that the Eurozone is already in recession.  Energy prices are fluctuating as they await Friday's comments from Fed Chair Powell, which could create some volatility for the dollar and interest rates and move crude oil prices.  A weaker dollar Thursday was a supportive factor for energy prices.

Oil prices were undercut by Thursday's prediction from UBS that Eurozone is already in a "shallow" recession.  UBS predicts Eurozone Q3 GDP will contract -0.1% (q/q annualized) in Q3 and -0.2% in Q4.

Thursday's action by China to boost its economic stimulus measures supported crude oil prices.  China said it would provide 1 trillion yuan ($146 billion) of funding, largely focused on infrastructure spending.

Another positive for crude is Monday's report from Bloomberg that showed 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.

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 online.
 

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