Crude Slightly Lower on Dollar Strength and Ample US Oil Supplies

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July WTI crude oil (CLN24) today is down -0.17 (-0.22%), and July RBOB gasoline (RBN24) is up +0.79 (+0.33%).

Crude oil and gasoline prices today are mixed.  A stronger dollar today is undercutting energy prices.  Crude prices are also weighed down by negative carryover from Wednesday after weekly EIA crude inventories unexpectedly increased.  Losses in crude are limited after Russia vowed to cut back its crude production.

Weakness in global economic news is bearish for energy demand and oil prices.  US weekly initial unemployment claims unexpectedly rose +13,000 to a 10-month high of 242,000, showing a weaker labor market than expectations of a decline to 225,000.  Also, Eurozone Apr industrial production unexpectedly fell -0.1% m/m versus expectations of a +0.2% m/m increase.

Crude prices found support today 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.  Russia had produced oil above its agreed to OPEC+ target in April and May and said it plans to strictly comply 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 9 rose +10% to  3.53 million bpd.

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 -19% w/w to 75.59 million bbl as of June 7.

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.

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 ended June 7 fell -4 rigs to a 2-1/4 year low of 492 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.