July WTI crude oil (CLN24) on Tuesday closed up +1.24 (+1.54%), and July RBOB gasoline (RBN24) closed up +3.63 (+1.48%).
Crude oil and gasoline prices Tuesday finished moderately higher, with crude posting a 7-week high and gasoline posting a 3-week high. A weaker dollar Tuesday was supportive of energy prices. Crude also has support on expectations that global oil supplies will remain tight in the medium term after Saudi Arabia said last week that it could reverse OPEC+ production changes to support crude prices and after Russia vowed to cut back its crude production.
Tuesday's global economic news was mixed for energy demand and oil prices. On the positive side, US May manufacturing production rose +0.9% m/m, stronger than expectations of +0.3% m/m. Also, the German Jun ZEW survey expectations of economic growth rose +0.4 to a 2-1/3 year high of 47.5. Conversely, US May retail sales rose +0.1% m/m, weaker than expectations of +0.3% m/m.
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 -12% w/w to 78.66 million bbl as of June 14.
Crude has carryover support from last Thursday when after Russia's Energy Ministry pledged to cut daily crude production this month by 971,000 bpd from the baseline of 9.949 million bbl. In April and May, Russia over-produced relative to its OPEC+ target, but it said it plans to comply strictly with its quota beginning this month.
Higher than expected Russian crude output and exports are bearish for oil prices. Russian crude production averaged 9.39 million bpd in May, which was +3.8% above its agreed target of 9.049 million bpd. Russia's fuel exports have also increased as refineries come back online after being damaged by Ukrainian drone attacks. Russian fuel exports in the week to June 16 rose by +5% to a 2-month high of 3.7 million bpd.
OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies. OPEC+ agreed on June 2 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.
An increase in OPEC crude output is negative for oil prices. OPEC May crude production rose +60,000 bpd to 26.96 million bpd, a 5-month high.
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.
The consensus is for Thursday's weekly EIA crude inventories to fall by -2.8 million bbl and gasoline supplies to climb by +1.05 million bbl.
Last Wednesday's EIA report showed that (1) US crude oil inventories as of June 7 were -3.6% below the seasonal 5-year average, (2) gasoline inventories were -0.5% below the seasonal 5-year average, and (3) distillate inventories were -7.2% below the 5-year seasonal average. US crude oil production in the week ending June 7 rose +0.8% w/w at 13.2 million bpd, just below the recent record high of 13.3 million bpd.
Baker Hughes reported last Friday that active US oil rigs in the week ending June 14 fell -4 to a 2-1/3 year low of 488 rigs. 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.
