July WTI crude oil (CLN24) Tuesday closed down -0.97 (-1.31%), and July RBOB gasoline (RBN24) closed up +1.39 (+0.60%).
Crude oil and gasoline prices on Tuesday settled mixed, with crude falling to a 3-3/4 month low. Crude is under pressure on negative carryover from Sunday when OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies. Also, signs of weakness in the US economy are bearish for energy demand and crude prices after the Apr JOLTS job openings fell more than expected to a 3-year low. Crude prices recovered from their worst levels, and gasoline pushed into positive territory on Tuesday after the dollar index (DXY00) fell to an 8-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.
Tuesday's weaker-than-expected labor market news for the US and Germany was bearish for crude prices. The US Apr JOLTS job openings fell -296,000 to a 3-year low of 8.059 million, showing a weaker labor market than expectations of 8.350 million. Also, the German May unemployment change rose by +25,000, the largest increase in 7 months, and it showed a weaker labor market than expected of +7,000.
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 +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. 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. Russia's fuel exports are steady as refineries come back online after being damaged by Ukrainian drone attacks. Russian fuel exports in the week to June 2 were unchanged from the prior week at 3.22 million bpd.
The consensus is that Wednesday's weekly EIA crude inventories will fall by -2.3 million bbl, and gasoline supplies will climb by +1.7 million bbl.
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.
