September WTI crude oil (CLU25) on Wednesday closed up +0.79 (+1.14%), and September RBOB gasoline (RBU25) closed up +0.0262 (+1.20%).
Crude oil and gasoline prices on Wednesday extended this week’s rally to 5-week highs. Signs of strength in the global economy are supportive for energy demand and crude prices after Wednesday’s US and Eurozone Q2 GDP reports showed stronger-than-expected economic growth. Crude prices added to their gains Wednesday after President Trump threatened to penalize India for being one of the largest buyers of Russian energy. Gains in crude were limited after the dollar index (DXY00) rallied to a 2-month high and after weekly EIA crude inventories unexpectedly surged.
Wednesday’s global economic news shows strength and is bullish for energy demand and crude prices. US Q2 GDP rose +3.0% (q/q annualized), stronger than expectations of +2.6%. Also, the US July ADP employment change rose +104,000, stronger than expectations of +76,000 and the largest increase in four months. In addition, Eurozone Q2 GDP rose +0.1% q/q and +1.4% y/y, stronger than expectations of unchanged m/m and +1.2% y/y. Finally, Eurozone July economic confidence rose +1.6 to a 5-month high of 95.8, stronger than expectations of 94.5.
Crude prices have support after President Trump said on Monday that he would impose a new deadline of 10 days for Russia to reach a truce with Ukraine before he increases sanctions on Russian energy exports. JPMorgan Chase warned that if enforced, oil markets would be unable to ignore the impact of triple-digit tariffs on Russian oil, given the significant scale of Russian exports and limited OPEC spare capacity, which could potentially lead to a supply shock.
The European Union recently approved fresh sanctions on Russian oil due to its aggression against Ukraine. The sanctions package includes cutting off 20 more Russian banks from the international payments system SWIFT, as well as restrictions imposed on Russian petroleum refined in other countries. A large oil refinery in India, part-owned by Russia’s Rosneft PJSC, was also blacklisted. Additionally, 105 more ships in Russia’s shadow fleet were sanctioned, pushing the number of sanctioned ships above 400.
In a supportive factor for oil prices, Bloomberg reported on July 10 that OPEC+ is discussing a pause in further production increases from October, following its next monthly hike in September of 548,000 barrels. OPEC+ may be concerned about a slowdown in global oil demand in the second half of this year that could lead to a supply glut if the group keeps boosting production. The International Energy Agency said inventories have been accumulating at a rate of 1 million bpd and that the global crude oil market faces a surplus by Q4-2025 equivalent to 1.5% of global crude consumption. OPEC+ will meet again this Sunday and is expected to boost its production again by 548,000 barrels per day (bpd) beginning September 1.
Concern about a global oil glut is negative for crude prices. On July 5, OPEC+ agreed to raise its crude production by 548,000 bpd beginning August 1, exceeding expectations of a 411,000 bpd increase. Saudi Arabia also stated that additional similar-sized increases in crude output could follow, which is viewed as a strategy to reduce oil prices and penalize overproducing OPEC+ members, such as Kazakhstan and Iraq. OPEC+ is boosting output to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production by September 2026. On May 31, OPEC+ agreed to a 411,000 bpd increase in crude production for July, following the same 411,000 bpd hike for June. June crude production rose +360,000 bpd to a 1.5-year high of 28.10 million bpd.
Oil prices have been undercut by expectations for Iraq to boost crude exports from its northern Kurdish region through the Iraq-Turkey pipeline, where oil exports have been halted since March 2023. The Iraqi government approved a plan for the semi-autonomous Kurdish region to resume oil exports. Kurdistan expects to supply Iraq’s crude market with 230,000 bpd of crude once exports resume. Iraq is the second-largest oil producer in OPEC.
An increase in crude oil held worldwide on tankers is bearish for oil prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days rose by +23% w/w to 84.99 million bbl in the week ended July 25.
Wednesday’s weekly EIA report was mixed for crude and products. On the supportive side, EIA gasoline supplies fell by -2.7 million bbl, a larger draw than expectations of -1.1 million bbl. On the negative side, EIA crude inventories unexpectedly rose +7.7 million bbl versus expectations of a decline of -2.6 million bbl. Also, EIA distillate stockpiles unexpectedly rose +3.6 million bbl versus expectations of a -400,00 bbl draw. In addition, crude inventories at Cushing, the delivery point of WTI futures, rose by +690,000 bbl.
Wednesday’s weekly EIA report showed that (1) US crude oil inventories as of July 25 were -5.6% below the seasonal 5-year average, (2) gasoline inventories were -0.7% below the seasonal 5-year average, and (3) distillate inventories were -15.2% below the 5-year seasonal average. US crude oil production in the week ending July 25 rose +0.3% w/w to 13.314 million bpd, modestly below the record high of 13.631 million bpd posted in the week of 12/6/2024.
Baker Hughes reported last Friday that the number of active US oil rigs in the week ending July 22 decreased by -7 rigs to a new 3.75-year low of 415 rigs. Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.25-year high of 627 rigs reported in December 2022.
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. This article was originally published on Barchart.com
