July WTI crude oil (CLN24) today is down -2.69 (-3.49%), and July RBOB gasoline (RBN24) is down -6.98 (-2.89%).
Crude oil and gasoline prices today fell sharply to 3-month lows. Crude prices are falling after OPEC+ on Sunday unexpectedly rolled out a plan to restore some crude production in Q4. Also, signs of weakness in the US economy are negative for energy demand and crude prices after the US ISM manufacturing and construction spending reports declined. Crude prices are falling despite today's decline in the dollar index to a 2-week low.
OPEC+ on Sunday agreed to extend the 2 million bpd of voluntary crude production cuts into Q3 but then gradually phase out the cuts over the following 12 months beginning in October. OPEC pledged to extend its crude production cap at about 39 million bpd to the end of 2025. Also, the UAE was given a 300,000 bpd boost to its production target for 2025.
Today's weaker-than-expected US economic news was bearish for crude prices. The May ISM manufacturing index unexpectedly fell -0.5 to 48.7, weaker than expectations of an increase to 49.5. Also, Apr construction spending unexpectedly fell -0.1% m/m, weaker than expectations of +0.2% m/m.
An increase in crude oil in floating storage is bearish for prices. Today'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 +2.2% w/w to 85.62 million bbl as of May 31.
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.
Last 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 31 fell -1 rig to 496 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.