Oct WTI crude oil (CLV22) on Friday closed up +0.54 (+0.58%), and Oct RBOB gasoline (RBV22) closed up +0.54 (+0.20%).
Crude and gasoline prices Friday recovered from early losses and posted moderate gains. Supply concerns are underpinning oil prices after Saudi Arabia earlier this week warned that it might need to restrict supply due to a disconnect in oil futures prices. Crude prices Friday initially moved lower on a stronger dollar and concern that tighter Fed policy will slow the economy and energy demand after Fed Chair Powell said “restoring price stability will likely require maintaining a restrictive policy stance for some time.” A slump in stocks Friday also undercut confidence in the economic outlook that is negative for energy demand.
A bullish factor 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.
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 Friday that active U.S. oil rigs in the week ended August 25 rose by +4 rigs and matched 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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