September WTI crude oil (CLU25) on Friday closed down -1.93 (-2.79%), and September RBOB gasoline (RBU25) closed down -0.0553 (-2.54%).
Crude oil and gasoline prices sold off sharply on Friday, driven by concerns about global energy demand due to President Trump's tariff policies and weaker-than-expected US economic reports on July payrolls and July ISM manufacturing. Also, Friday's slump in the S&P 500 to a 2-week low curbs confidence in the economic outlook, which is negative for energy demand.
Crude prices came under pressure Friday after President Trump late Thursday announced a 10% global minimum and 15% or higher tariffs for countries with trade surpluses with the US, effective after midnight on August 7. The higher tariffs could weigh on global economic growth and energy demand.
Friday's US economic news was weaker than expected and bearish for energy demand and crude prices. Jul nonfarm payrolls rose +73,000, weaker than expectations of +104,000, and Jun nonfarm payrolls were revised downward to +14,000 from the previously reported +147,000. Also, the Jul ISM manufacturing index unexpectedly fell -1.0 to 48.0, weaker than expectations of an increase to 49.5 and the steepest pace of contraction in 9 months.
Crude prices have support after President Trump said on Monday that he would impose a new deadline of 10 days for Russia to reach a truce with Ukraine before he increases sanctions on Russian energy exports. JPMorgan Chase warned that if enforced, oil markets would be unable to ignore the impact of triple-digit tariffs on Russian oil, given the significant scale of Russian exports and limited OPEC spare capacity, which could potentially lead to a supply shock.
The European Union recently approved fresh sanctions on Russian oil due to its aggression against Ukraine. The sanctions package includes cutting off 20 more Russian banks from the international payments system SWIFT, as well as restrictions imposed on Russian petroleum refined in other countries. A large oil refinery in India, part-owned by Russia's Rosneft PJSC, was also blacklisted. Additionally, 105 more ships in Russia's shadow fleet were sanctioned, pushing the number of sanctioned ships above 400.
In a supportive factor for oil prices, Bloomberg reported on July 10 that OPEC+ is discussing a pause in further production increases from October, following its next monthly hike in September of 548,000 barrels. OPEC+ may be concerned about a slowdown in global oil demand in the second half of this year that could lead to a supply glut if the group keeps boosting production. The International Energy Agency said inventories have been accumulating at a rate of 1 million bpd and that the global crude oil market faces a surplus by Q4-2025 equivalent to 1.5% of global crude consumption. OPEC+ will meet again this Sunday and is expected to boost its production again by 548,000 barrels per day (bpd) beginning September 1.
Concern about a global oil glut is negative for crude prices. On July 5, OPEC+ agreed to raise its crude production by 548,000 bpd beginning August 1, exceeding expectations of a 411,000 bpd increase. Saudi Arabia also stated that additional similar-sized increases in crude output could follow, which is viewed as a strategy to reduce oil prices and penalize overproducing OPEC+ members, such as Kazakhstan and Iraq. OPEC+ is boosting output to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production by September 2026. On May 31, OPEC+ agreed to a 411,000 bpd increase in crude production for July, following the same 411,000 bpd hike for June. June crude production rose +360,000 bpd to a 1.5-year high of 28.10 million bpd.
Oil prices have been undercut by expectations for Iraq to boost crude exports from its northern Kurdish region through the Iraq-Turkey pipeline, where oil exports have been halted since March 2023. The Iraqi government approved a plan for the semi-autonomous Kurdish region to resume oil exports. Kurdistan expects to supply Iraq's crude market with 230,000 bpd of crude once exports resume. Iraq is the second-largest oil producer in OPEC.
An increase in crude oil held worldwide on tankers is bearish for oil prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days rose by +23% w/w to 84.99 million bbl in the week ended July 25.
Wednesday's weekly EIA report showed that (1) US crude oil inventories as of July 25 were -5.6% below the seasonal 5-year average, (2) gasoline inventories were -0.7% below the seasonal 5-year average, and (3) distillate inventories were -15.2% below the 5-year seasonal average. US crude oil production in the week ending July 25 rose +0.3% w/w to 13.314 million bpd, modestly below the record high of 13.631 million bpd posted in the week of 12/6/2024.
Baker Hughes reported Friday that the number of active US oil rigs in the week ending August 1 decreased by -5 rigs to a new 3.75-year low of 410 rigs. Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.25-year high of 627 rigs reported in December 2022.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
