July WTI crude oil (CLN24) Thursday closed down -1.32 (-1.67%), and July RBOB gasoline (RBN24) closed down -5.64 (-2.29%).
Crude oil and gasoline prices Thursday closed moderately lower. Concern that interest rates will stay higher for longer sparked risk-off sentiment in financial assets on Thursday and undercut crude prices. Also, Thursday's decline in the S&P 500 to a 2-week low undercuts confidence in the economic outlook and is bearish for energy demand and crude prices. Crude prices retreated Thursday despite a weaker dollar, and after weekly EIA crude inventories fell more than expected.
Weak US economic news on Thursday was bearish for energy demand and crude prices. Weekly initial unemployment claims rose +3,000 to 219,000, showing a slightly weaker labor market than expectations of 217,000. Also, Apr pending home sales fell -7.7% m/m, weaker than expectations of -1.0% m/m and the biggest decline in over three years. In addition, Q1 GDP was revised downward to +1.3% (q/q annualized) from +1.6%.
The weakness in the crude crack spread is bearish for oil prices after the crack spread Thursday dropped to a 3-1/4 month low, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.
Crude oil prices have underlying support from concern about the Hamas-Israel conflict. Israel's military is conducting 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.
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. However, Russia's fuel exports have declined as refineries are slow to come back online after being damaged by Ukrainian drone attacks. Russian fuel exports in the week to May 26 fell about -170,000 bpd from the prior week to 3.22 million bpd.
A decline in crude oil 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 -8.1% w/w to 74.82 million bbl as of May 24.
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 2. 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 when it meets online on June 2. 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.
Thursday's weekly EIA report was mixed for crude and products. On the bearish side, EIA gasoline supplies unexpectedly rose +2.02 million bbl versus expectations of a -1.5 million bbl draw. Also, EIA distillate stockpiles unexpectedly rose +2.5 million bbl versus expectations of no change. On the positive side, EIA crude inventories fell -4.16 million bbl, a larger draw than expectations of -1.8 million bbl. Also, crude supplies at Cushing, the delivery point of WTI futures, fell -1.77 million bbl.
Thursday's EIA report showed that (1) US crude oil inventories as of May 24 were -4.1% below the seasonal 5-year average, (2) gasoline inventories were -0.8% below the seasonal 5-year average, and (3) distillate inventories were -5.5% below the 5-year seasonal average. US crude oil production in the week ending May 24 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 24 were unchanged at 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.