July WTI crude oil (CLN24) on Thursday closed down -0.70 (-0.90%), and July RBOB gasoline (RBN24) closed down -0.22 (-0.09%).
Crude oil and gasoline prices Thursday were under pressure the entire session and fell to 1-week lows. Thursday's rally in the dollar index (DXY00) to a 1-week high undercut energy prices. Crude also had a negative carryover from Wednesday when weekly EIA crude inventories unexpectedly rose, and stockpiles at Cushing, the delivery point of WTI futures, climbed to a 10-month high. Better-than-expected global manufacturing news Thursday supports energy demand and limited losses in crude prices.
Thursday's global manufacturing news was better than expected and was bullish from energy demand and crude prices. The US May S&P manufacturing PMI unexpectedly rose +0.9 to 50.9, stronger than expectations of a decline to 49.9. Also, the Eurozone May S&P manufacturing PMI rose +1.7 to a 15-month high of 47.4, stronger than expectations of 46.1. In addition, the Japan May Jibun Bank manufacturing PMI rose +0.9 to 50.5, the fastest pace of expansion in a year.
Higher than expected Russian crude output is bearish for oil prices. According to Bloomberg calculations based on official data, Russian crude production in April was 9.418 million bpd, more than +300,000 bpd above the 9.1 million bpd target Russia agreed to with OPEC+. Also, Russian crude processing averaged 5.45 million bpd in the first half of May, up 4% above April's level as refineries recovered from Ukrainian drone strikes. In addition, Russia's fuel exports have increased as refineries came back online after being damaged by Ukrainian drone attacks. Russian fuel exports in the week to May 19 rose about 140,000 bpd from the prior week to 3.39 million bpd.
An increase in crude oil in floating storage is bearish 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 rose +15% w/w to 69.27 million bbl as of May 17.
Crude oil prices have underlying support from concern about the Hamas-Israel conflict. Israel's military is poised to conduct major military operations in the southern Gaza city of Rafah despite opposition from the Biden administration. There is also concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran. Meanwhile, attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.
A negative factor for crude prices is concern that some OPEC+ members want to boost their crude production levels, which may lead to infighting among the group when it meets on June 1. Bloomberg reported last Tuesday that the UAE, Iraq, Algeria, and Kazakhstan aim to boost their production quotas. Saudi Arabia has pushed back against boosting output and has urged OPEC+ to be cautious about adding barrels to the market. The market consensus is that the 22-nation alliance will prolong its current crude production cuts into the second half of this year. OPEC+ members, at their last meeting on April 3, left their existing production cuts of about 2 million bpd in place until the end of June.
Wednesday's EIA report showed that (1) US crude oil inventories as of May 17 were -3.0% below the seasonal 5-year average, (2) gasoline inventories were -1.8% below the seasonal 5-year average, and (3) distillate inventories were -7.3% below the 5-year seasonal average. US crude oil production in the week ending May 17 was unchanged w/w at 13.1 million bpd, slightly below the recent record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ended May 17 rose by +1 rig to 497 rigs, slightly above the 2-year low of 494 rigs posted on November 10. The number of US oil rigs has fallen over the past year from the 4-year high of 627 rigs posted in December 2022.
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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.