Crude Prices Climb on Tightness in Global Supplies

Oct WTI crude oil (CLV22) this morning is up +2.52 (+2.71%), and Oct RBOB gasoline (RBV22) is up +0.46 (+0.17%).  Sep Nymex natural gas (NGU22) is up +0.212 (+2.28%).

Crude and gasoline prices this morning are moving higher, with crude posting a 4-week high.  Tightness in global oil supplies is underpinning crude prices.  The prospects for Iranian crude to enter global markets receded after Iran said talks with the U.S. over an EU proposal to revive a nuclear deal will drag on into next month.  Crude also has carry-over support from last week when Saudi Arabia raised the possibility that OPEC+  might need to restrict supply due to a disconnect in oil futures prices.

Sep nat-gas recovered from a 1-week low this morning and is moderately higher on the outlook for hot U.S. temperatures to boost nat-gas demand.  Private forecaster Atmospheric G2 said today that "significant late-season heat will encompass the West and north-central U.S. next week."  That will boost nat-gas demand from electricity providers to provide power for increased air-conditioning usage.  Sep nat-gas today initially fell to a 1-week low on negative carry-over from a -16% plunge in European nat-gas prices after Germany said its nat-gas storage was filling up faster than expected.

Crude found support today after Iran said that talks with the U.S. about reviving a nuclear deal will drag on into next month, curbing speculation that an imminent agreement would lift sanctions against Iran and allow Iranian oil exports onto the global market.  

In a bullish factor, Vortexa reported today that the amount of crude stored on tankers that have been stationary for at least a week fell -7.8% w/w to 100.70 million bbls in the week ended August 26.

Weakness in the crude crack spread is bearish for oil prices as the spread dropped to a 5-week low today.  The weaker spread discourages refiners from purchasing crude oil to refine into gasoline.

Reduced 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.  

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.

Last 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 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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