September WTI crude oil (CLU23) on Wednesday closed down -1.61 (-1.99%), and Sep RBOB gasoline (RBU23) closed up +1.95 (+0.68%).
Crude oil and gasoline prices Wednesday settled mixed, with crude falling to a 1-1/2 week low. A stronger dollar Wednesday weighed on energy prices, as did the decline in the S&P 500 to a 5-week low. Also, crude is under pressure on concerns about China's economic growth after JPMorgan Chase and Barclays cut their 2023 growth estimates for China. Crude prices retreated Wednesday despite weekly EIA crude inventories falling more than expected.
Concerns that China's faltering economy will undercut its energy demand are a bearish factor for crude prices. JPMorgan Chase cut its China 2023 GDP forecast to 4.8% from a 6.4% estimate in May. Also, Barclays cut its China 2023 GDP forecast to 4.5% from a prior forecast of 4.9%.
Stronger-than-expected manufacturing activity in the U.S. and Europe is a supportive factor for fuel demand and crude prices. U.S. Jul manufacturing production unexpectedly rose +0.5% m/m, stronger than expectations of no change. Also, Eurozone Jun industrial production unexpectedly rose +0.5% m/m, stronger than expectations of no change.
A negative factor for crude prices is the progress made in Iran-U.S. relations that could lead to higher crude exports from Iran after Iran said last week's deal with the U.S. on the release of prisoners and frozen Iranian funds could lead to diplomacy in other areas, including its nuclear program. An agreement on Iran's nuclear program could prompt the U.S. and its allies to remove sanctions on Iranian crude exports, boosting global crude supplies.
In a bearish factor, China's July crude imports fell -19% m/m to 10.33 million bpd, the smallest volume in 6 months. Also, Vortexa said China's onshore crude inventories have expanded to a record 1.02 billion bbl as of Jul 27.
A decline in crude demand in India, the world's third-biggest crude consumer, is bearish for oil prices. India's Jun crude oil imports fell -1.3% y/y to 19.7 MMT, the lowest in 7 months.
Crude has support on last Tuesday's comments from Ukraine President Zelensky, who said his country would retaliate against Russian ships in the Black Sea if Russia continued to block Ukrainian ports. Ukrainian drones on Aug 6 attacked a Russian oil tanker in the Black Sea, a route that accounts for 20% of the oil that Russia sells daily on global markets.
Crude prices have carryover support from earlier this month when Saudi Arabia and Russia said they would extend their crude production cuts. Saudi Arabia said it will extend its 1 million bpd cut in crude production into September and said its crude output may "be extended, or extended and deepened." The cut in Saudi production keeps its crude output at about 9 million bpd, the lowest level in several years. Meanwhile, Russian Deputy Prime Minister Novak said Russia "will continue to voluntarily reduce its oil supply in September by 300,000 bpd" to balance the market. Russia cut its crude output by 500,000 bpd in August.
OPEC crude production in July fell -900,000 bpd to a 1-3/4 year low of 27.79 million bpd.
A bullish factor for crude oil is a decline in Russian crude shipments. Vessel-tracking data monitored by Bloomberg showed Russian crude oil shipments in the four weeks to Aug 6 dropped to 3.02 million bpd, about 870,000 bpd below the peak in mid-May.
A decline in crude in floating storage is bullish for prices. Monday's weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -4.2% w/w to 99.67 million bbl as of Aug 11.
Wednesday's weekly EIA report was mixed for crude. On the bearish side, EIA gasoline supplies fell -262,000 bbl, a smaller draw than expectations of -1.0 million bbl. Also, EIA distillate stockpiles unexpectedly rose +296,000 bbl versus expectations of a -500,000 bbl decline. In addition, U.S. crude production in the week ended Aug 11 rose +0.8% w/w to 12.7 million bpd, the most in over three years. On the bullish side, EIA crude inventories fell -5.96 million bbl, a larger draw than expectations of -2.5 million bbl. Also, crude stockpiles at Cushing, the delivery point of WTI futures, fell by -837,000 bbl.
Wednesday's weekly EIA report showed that (1) U.S. crude oil inventories as of Aug 11 were -1.5% below the seasonal 5-year average, (2) gasoline inventories were -6.6% below the seasonal 5-year average, and (3) distillate inventories were -16.7% below the 5-year seasonal average. U.S. crude oil production in the week ended Aug 11 rose +0.8% w/w to 12.7 million bpd, the most in over three years. U.S. crude oil production is modestly 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 Aug 11 were unchanged at a 17-month low of 525 rigs. That is well below the 3-1/4 year high of 627 rigs posted on Dec 2, 2022. Still, U.S. active oil rigs are more than triple the 18-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity from pandemic lows.
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.
