Fueling Strategy: Please “KEEP YOUR TANKS TOPPED” today/tonight, Thursday prices will JUMP UP 2.5 cents ~Be Safe

NMEX Crude      $ 78.89 DN $.7500

NYMEX ULSD     $3.1291 DN $.0097

NYMEX Gas       $2.7688 DN $.0203

NEWS

October WTI crude oil on Wednesday closed down -0.75 (-0.94%), and Oct RBOB gasoline closed down -1.30 (-0.51%).

Crude oil and gasoline prices Wednesday retreated, with crude falling to a 4-week low and gasoline dropping to a 3-week low.  Weaker-than-expected economic news Wednesday from the U.S. and Europe signals economic weakness that is bearish for energy demand and crude prices.   Crude recovered from its worst levels after weekly EIA crude inventories fell more than expected to a 7-1/2 month low.

Global economic news Wednesday was weaker than expected and is bearish for energy demand and crude prices.  The U.S. Aug S&P manufacturing PMI fell -2.0 to 47.0, weaker than expectations of no change at 49.0.  Also, the Eurozone Aug S&P composite PMI fell -1.6 to 47.0, weaker than expectations of -0.1 to 48.5 and the steepest pace of contraction in 2-3/4 years.  In addition, the UK Aug S&P manufacturing PMI fell -2.8 to 42.5, weaker than expectations of 45.0 and the steepest pace of contraction in 3 years.

Another bearish factor for crude was a Bloomberg report that said the Biden administration is in talks with Venezuela to explore a temporary lifting of U.S. sanctions against Venezuela in exchange for allowing fair elections next year.  Lifting U.S. sanctions would allow crude exports from Venezuela into the global market, boosting supplies.

Weakness in the crude crack spread is bearish for crude prices.  The crack spread Wednesday fell to a 5-week low, discouraging refiners from purchasing crude to refine it into gasoline and distillates.

An increase in Iranian crude exports is boosting global supplies and is bearish for oil prices.  According to TankerTrackers.com, which provides data on oil cargo shipments to governments, Iranian crude exports rose to a 5-year high of 2.2 million bpd during the first 20 days of August, with most of the crude going to China.

A negative factor for crude prices is the progress made in Iran-U.S. relations that could lead to higher crude exports from Iran after Iran said the recent deal with the U.S. on the release of prisoners and frozen Iranian funds could lead to diplomacy in other areas, including its nuclear program.  An agreement on Iran’s nuclear program could prompt the U.S. and its allies to remove sanctions on Iranian crude exports, boosting global crude supplies.

In a bearish factor, China’s July crude imports fell -19% m/m to 10.33 million bpd, the smallest volume in 6 months.  Also, Vortexa said China’s onshore crude inventories have expanded to a record 1.02 billion bbl as of July 27.

A decline in crude demand in India, the world’s third-biggest crude consumer, is bearish for oil prices.  India’s Jun crude oil imports fell -1.3% y/y to 19.7 MMT, the lowest in 7 months.

Crude has support from concerns that Ukraine could retaliate against Russian ships in the Black Sea if Russia continued to block Ukrainian ports.   Ukrainian drones on Aug 6 attacked a Russian oil tanker in the Black Sea, a route that accounts for 20% of the oil that Russia sells daily on global markets.

Crude prices have carryover support from earlier this month when Saudi Arabia and Russia said they would extend their crude production cuts.  Saudi Arabia said it will extend its 1 million bpd cut in crude production into September and said its crude output may “be extended, or extended and deepened.”  The cut in Saudi production keeps its crude output at about 9 million bpd, the lowest level in several years.  Meanwhile, Russian Deputy Prime Minister Novak said Russia “will continue to voluntarily reduce its oil supply in September by 300,000 bpd” to balance the market.  Russia cut its crude output by 500,000 bpd in August.

OPEC crude production in July fell -900,000 bpd to a 1-3/4 year low of 27.79 million bpd.

A bullish factor for crude oil is a decline in Russian crude shipments.  Vessel-tracking data monitored by Bloomberg showed Russian crude oil shipments in the four weeks to Aug 18 dropped to 2.29 million bpd, the lowest daily average in ten months.

A decline in crude 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 -7% w/w to 104.09 million bbl as of Aug 18.

Wednesday’s weekly EIA report was mixed for crude oil and products.  On the bearish side, EIA gasoline supplies unexpectedly rose +1.47 million bbl versus expectations of a -481,000 bbl draw.  Also, EIA distillate stockpiles rose +945,000 bbll, a larger build than expectations of +698,000 bbl.  In addition, U.S. crude production in the week ended Aug 18 rose +0.8% w/w to 12.8 million bpd, the most in over three years.  On the bullish side, EIA crude inventories fell -6.13 million bbl to a 7-1/2 month low, a larger draw than expectations of -3.0 million bbl.  Also, crude supplies at Cushing, the delivery point of WTI futures, fell -3.13 million bbl to a 7-month low.

Wednesday’s weekly EIA report showed that (1) U.S. crude oil inventories as of Aug 18 were -2.2% below the seasonal 5-year average, (2) gasoline inventories were -5.9% below the seasonal 5-year average, and (3) distillate inventories were -16.2% below the 5-year seasonal average.  U.S. crude oil production in the week ended Aug 18 rose +0.8% w/w to 12.8 million bpd, the most in over three years.  U.S. crude oil production is modestly below the Feb-2020 record-high of 13.1 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Aug 18 fell by -5 to a 17-month low of 520 rigs.  That is well below the 3-1/4 year high of 627 rigs posted on Dec 2, 2022.  Still, U.S. active oil rigs are more than triple the 18-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity from pandemic lows.

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Loren R Bailey, President

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