Crude Pushes Higher on Dollar Weakness and Chinese Energy Demand Optimism

Barchart · 05/13 10:45

June WTI crude oil (CLM24) this morning is up +0.55 (+0.70%), and June RBOB gasoline (RBM24) is up +1.50 (+0.60%).

Crude oil and gasoline prices today are moderately higher.  A weaker dollar today is supportive of energy prices.  Crude also climbed after the Chinese government started selling 1 trillion yuan ($138 billion) of special bonds to fund infrastructure spending, which should aid Chinese economic growth and support energy consumption.

Crude oil prices have underlying support from concern about the Hamas-Israel conflict.  Israel's military seems to be on the verge of conducting major 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.

Weakness in the crude crack spread is bearish for oil prices.  The crack spread today dropped to a 2-3/4 month low, discouraging refiners from purchasing crude oil and refining it into gasoline or distillates.

Higher than-expected Russian crude output is bearish for oil prices.  According to Bloomberg calculations based on official data, Russian crude production in April was 9.418 million bpd, more than +300,000 bpd above the 9.1 million bpd target Russia agreed to with OPEC+.  Meanwhile, Russia's fuel exports have been undercut by recent Ukrainian drone attacks on Russian refineries but recovered in the May 5 week by about +250,000 bpd to 3.68 million bpd from 3.43 million bpd in the prior week.  

Reduced crude oil in floating storage is bullish for prices.  Today'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 -11% w/w to 55.92 million bbl as of May 10, the lowest in 4 years.

An increase in crude demand in India, the world's third-largest crude consumer, is bullish for oil prices after India's April oil demand rose +6.1% y/y to 19.86 MMT.

Crude prices have support from April 3 when OPEC+, at its monthly meeting, did not recommend any changes to their existing crude output cuts.  That kept about 2 million bpd of production cuts in place until the end of June.  However, OPEC crude production in March rose +10,000 bpd to 26.860 million bpd, a bearish factor for oil prices as Iraq and UAE continue to pump above their production quotas.  OPEC+ will meet again on June 1 to discuss crude production levels.

Last Wednesday's EIA report showed that (1) US crude oil inventories as of May 3 were -3.1% below the seasonal 5-year average, (2) gasoline inventories were -2.0% 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 May 3 was unchanged w/w at 13.1 million bpd, below the recent record high of 13.3 million bpd.

Baker Hughes reported last Friday that active US oil rigs in the week ended May 10 fell by -3 rigs to 496 rigs, slightly above the 2-year low of 494 rigs posted on November 10.  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.