Crude Prices Decline on Dollar Strength and a Smaller Draw in Weekly EIA Inventories

Oct WTI crude oil (CLV24) Wednesday closed down -1.01 (-1.34%), and Oct RBOB gasoline (RBV24) closed down -3.03 (-1.44%).

Crude oil and gasoline prices posted moderate losses on Wednesday.  Dollar strength Wednesday undercut energy prices.  Crude prices extended their losses after weekly EIA crude inventories fell less than expected.  Losses in crude were limited by heightened Middle East tensions and the halt to Libya's crude exports that have taken more than 1 million bpd of crude off the global market.  

Weakness in the crude crack spread is bearish for oil prices as the crack spread today dropped to a new 3-1/2 year low, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.

An increase in Russian crude exports has boosted global supplies and is bearish for oil prices.  Weekly vessel-tracking data from Bloomberg showed Russian crude exports rose by +390,000 bpd to 3.35 million bpd in the week to August 25, the highest in nearly two months.  Meanwhile, 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+.

Crude oil prices have support after Libya's eastern government declared force majeure on all oil fields, terminals, and crude export facilities as it called for a halt to all crude production and exports due to political conflict over who controls the country's central bank and oil revenues.

Oil prices are also supported by concern that an escalation of conflict in the Middle East could disrupt oil supplies after more than 100 Israeli warplanes Sunday attacked sites in southern Lebanon to take out hundreds of Hezbollah missile launchers.

A sharp decline in crude oil held worldwide on tankers is bullish for prices.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days fell by -24% w/w to 58.06 million bbl in the week ended August 23, the lowest in 4-1/2 years.

Concern about weaker US gasoline demand has 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.

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 weekly EIA report was mixed for crude and products.  On the bearish side,  EIA crude inventories fell -846,000 bbl, a smaller draw than expectations of -2.775 million bbl.  Also, EIA distillate stockpiles unexpectedly rose +275,000 bl versus expectations of a -815,000 bbl draw.  On the positive side, EIA gasoline supplies fell -3.30 million bbl to a 9-month low, a bigger decline than expectations of -2.15 million bbl.  Also, crude stockpiles at Cushing, the delivery point of WTI futures, fell -668,000 bbl to a 9-month low.

Wednesday's EIA report showed that (1) US crude oil inventories as of August 23 were -3.8% below the seasonal 5-year average, (2) gasoline inventories were -3.3% below the seasonal 5-year average, and (3) distillate inventories were -9.9% below the 5-year seasonal average.  US crude oil production in the week ending August 23 fell -0.7% w/w to 13.3 million bpd, falling back from the previous week's record high of 13.4 million bpd.

Baker Hughes reported last Friday that active US oil rigs in the week ending August 23 were unchanged at 483 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 Slip as Weekly EIA Inventories Fall Less Than Expected
• Crude Prices Close Lower on Energy Demand Woes and Increased Russian Crude Exports
• Crude Prices Fall on Energy Demand Concerns and Increased Russian Crude Exports
• Crude Prices Rally on Middle East Supply Concerns

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