Crude Climbs on Energy Demand Optimism and Iran Tensions

Sep WTI crude oil (CLU24) today is up +1.42 (+1.84%), and Sep RBOB gasoline (RBU24) is up +4.66 (+2.01%).

Crude oil and gasoline prices today are moderately higher.  Stronger-than-expected US jobless claims and retail sales reports today signaled economic strength and were positive for energy demand and crude prices.   Also, today's rally in the S&P 500 to a 2-week high bolstered confidence in the economic outlook and supported the energy demand outlook and crude prices.  In addition, crude has support as risks remain high for a retaliatory attack by Iran against Israel, further escalating Middle East tensions.

Better-than-expected global economic news today is bullish for energy demand and crude prices.  US July retail sales rose +1.0% m/m, stronger than expectations of +0.4% m/m and the biggest increase in 1-1/2 years.  Also, US weekly initial unemployment claims unexpectedly fell -7,000 to a 5-week low of 227,000, showing a stronger labor market than expectations of an increase to 235,000.  In addition, Japan's Q2 GDP rose +3.1% q/q annualized, stronger than expectations of +2.3%.

Crude prices have support from fears of an imminent attack by Iran against Israel in response to last month's assassination of a Hamas leader by Israel in Iran, which could escalate the conflict in the Middle East and disrupt the region's crude oil supplies.  Israel's military continues to conduct operations in Gaza, and there is the 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.

Signs of weaker US gasoline demand have prompted several US refiners to reduce refining operations, a bearish factor for crude prices.  Marathon Petroleum, the owner of the largest US refinery, said it plans to cut its refining capacity rate to 90% this quarter, the lowest for a Q3 since 2020.  Also, PBF Energy said it was cutting its refining capacity utilization rate to a three-year low, and Phillips 66 said it would cut its capacity rate to a two-year low.

Increased Russian crude production is negative for oil prices after Russia's Energy Ministry reported last Friday that Russia's July crude production was 9.045 million bpd, about 67,000 bpd above the output target it agreed to with OPEC+.

An increase in crude oil held worldwide on tankers is bearish for prices.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days rose by +12% w/w to 66.11 million bbl in the week ended August 9.

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.

Wednesday's EIA report showed that (1) US crude oil inventories as of August 9 were -4.6% below the seasonal 5-year average, (2) gasoline inventories were -2.6% below the seasonal 5-year average, and (3) distillate inventories were -7.5% below the 5-year seasonal average.  US crude oil production in the week ending August 9 fell -0.7% w/w to 13.3 million bpd, falling back from the record high of 13.4 million bpd from the week of August 2.

Baker Hughes reported last Friday that active US oil rigs in the week ending August 9 rose +3 to 485 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 Settles Lower After EIA Crude Inventories Unexpectedly Increase
• Crude Prices Fall on an Unexpected Build in EIA Crude Inventories
• Crude Prices Settle Lower as Iran Has Yet to Attack Israel
• Crude Prices Slip as Iran Attack Has Yet to Materialize

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