August WTI crude oil (CLQ24) on Monday closed up +1.84 (+2.26%), and Aug RBOB gasoline (RBQ24) closed up +7.68 (+3.07%).
Crude oil and gasoline prices Monday rallied, with crude climbing to a 2-month high. The outlook for declining US crude output is propping up oil prices after last Friday's weekly report from Baker Hughes showed that active US oil rigs fell to a 2-1/2 year low. Also, heightened tensions in the Middle East are giving crude prices a boost, with Israel close to a full-blown war with Hezbollah in Lebanon and with Houthi rebels in Yemen stepping up their attacks on commercial shipping in the region.
Monday's global economic news was mostly positive for energy demand and crude prices. On the positive side, the China Jun non-manufacturing PMI fell -0.6 to 50.5, weaker than expectations of 51.0 and the slowest pace of expansion in 6 months. Also, the Eurozone Jun S&P manufacturing PMI was revised upward by 0.2 to 45.8 from the previously reported 45.6. In addition, the Japan Q2 Tankan large manufacturing business conditions rose +2 to 13, stronger than expectations of no change at 11. On the negative side, the Jun ISM manufacturing index unexpectedly fell 0.2 to a 4-month low of 48.5, weaker than expectations of an increase to 49.1.
Crude oil prices have underlying support from concern about the escalation of the Hamas-Israel conflict. Israel's military continues to conduct operations in Gaza, and there is also concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran as hostilities escalate between Israel and Hezbollah. 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.
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 -24% w/w to 73.29 million bbl as of June 28.
OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies. OPEC+, on June 2, extended the 2 million bpd of voluntary crude production cuts into Q3 but said they would 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.
A decrease in OPEC crude output is positive for oil prices. OPEC June crude production fell -80,000 bpd to 26.98 million bpd.
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.
Last 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 28 fell -6 rigs to a 2-1/2 year low of 479 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.