August WTI crude oil (CLQ24) on Wednesday closed up +0.07 (+0.09%), and Aug RBOB gasoline (RBQ24) closed up +2.67 (+1.07%).
Crude oil and gasoline prices on Wednesday recovered from early losses and closed higher, with gasoline climbing to a 5-week high. Strength in the crude crack spread sparked short-covering in crude after the crack spread Wednesday climbed to a 4-week high, encouraging refiners to boost their crude purchases to refine into gasoline and distillates. Crude prices on Wednesday initially fell to a 1-week low after the dollar index (DXY00) rallied to an 8-week high and after weekly EIA crude inventories unexpectedly rose.
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, ongoing 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.
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 +12% w/w to 92.90 million bbl as of June 21.
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. However, Russia's fuel exports have declined due to seasonal maintenance and damage to refineries from Ukrainian drone attacks. Russian fuel exports in the week to June 23 fell by -660,000 bpd to 3.04 million bpd, the lowest in over three months.
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.
Wednesday's weekly EIA report was mainly bearish. EIA crude inventories unexpectedly rose +3.59 million bbl versus expectations of a -2.8 million bbl draw. Also, EIA gasoline supplies unexpectedly rose +2.65 million bbl versus expectations of a -1.5 million bbl draw. In addition, EIA distillate stockpiles fell -377,000 bbl, a smaller draw than expectations of -1.05 million bbl. On the positive side, crude supplies at Cushing, the delivery point of WTI futures, fell by -226,000 bbl.
Wednesday's EIA report showed that (1) US crude oil inventories as of June 21 were -1.5% below the seasonal 5-year average, (2) gasoline inventories were -0.2% below the seasonal 5-year average, and (3) distillate inventories were -8.8% below the 5-year seasonal average. US crude oil production in the week ending June 21 was unchanged 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 21 fell -3 rigs to a 2-1/3 year low of 485 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.