Crude Prices Under Pressure on Risk Asset Aversion

Sep WTI crude oil (CLU24) today is down -0.66 (-0.90%), and Sep RBOB gasoline (RBU24) is down -0.91 (-0.39%).

Crude oil and gasoline prices today are under pressure, with crude posting a 6-month nearest-futures low and gasoline posting a 5-month low.  Today's slump in global equity markets has sparked long liquidation of risk assets and is undercutting energy prices.  Also, today's selloff in the S&P 500 to a 3-month low undercuts confidence in the economic outlook and energy demand and is bearish for crude prices.  Losses in crude oil are limited by today's fall in the dollar index (DXY00) to a 6-3/4 month low.  Also, concern about the escalation of conflict in the Middle East that could disrupt the region's crude supplies is supportive for crude prices after Iran threatened to retaliate against Israel for last week's assassination of a Hamas leader in Tehran.

Crude prices recovered from their worst levels today on reduced crude output from Libya after the Sharara oil field, Libya's biggest, halted crude production due to anti-government protests and security concerns.   The Sharara oil field was producing 270,000 bpd before it was shut down.

Today's global economic news was mixed for energy demand and crude prices.  On the negative side, the Eurozone Aug Sentix investor confidence index fell -6.6 to a 7-month low of -13.9, weaker than expectations of -8.0.  Also, the Japan Jul Jibun Bank services PMI was revised downward by -0.2 to 53.7 from the previously reported 53.9.  On the bullish side, the US Jul ISM services index rose +2.6 to 51.4, stronger than expectations of 51.0.  Also, the Eurozone Jul S&P composite PMI was revised upward by +0.1 to 50.2 from the previously reported 50.1.

Crude oil prices have underlying support from the Hamas-Israel conflict.  Israel's military continues to conduct operations in Gaza, and there is the continued risk 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.

A plunge in crude oil held worldwide on tankers is bullish for prices.  Vortexa reported today that crude oil stored on tankers that have been stationary for at least seven days fell by -31% w/w to 56.66 million bbl in the week ended August 2, the lowest in more than four years.

OPEC+ rolled out a plan to restore some crude production in Q4, which sparked worries about a glut in global oil supplies.  On June 2, OPEC+ 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.  In June, OPEC crude production fell -80,000 bpd to 26.98 million bpd.

Last Wednesday's EIA report showed that (1) US crude oil inventories as of July 26 were -4.4% below the seasonal 5-year average, (2) gasoline inventories were -3.3% below the seasonal 5-year average, and (3) distillate inventories were -6.6% below the 5-year seasonal average.  US crude oil production in the week ending July 26 was unchanged w/w and matched a record high of 13.3 million bpd.

Baker Hughes reported last Friday that active US oil rigs in the week ending August 2 were unchanged at 482 rigs, modestly above the 2-1/2 year low of 477 rigs posted in the week ending July 19.  The number of US oil rigs has fallen over the past year from the 4-year high of 627 rigs posted in December 2022.
 

• Crude Prices Finish Sharply Lower on US Economic Concerns
• Crude Prices Plummet on Fears of Slowing US Energy Demand
• Crude Prices Close Lower on Energy Demand Concerns
• Crude Prices Pull Back on Global Energy Demand Concerns

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