June WTI crude oil (CLM24) this morning is up +0.52 (+0.67%), and June RBOB gasoline (RBM24) is up +2.38 (+0.93%).
Crude oil and gasoline prices this morning are moderately higher. Sunday’s action by Saudi Arabia to raise crude prices for delivery next month for Asian customers signals confidence in global energy demand and is bullish for crude prices. Also, fading prospects for a cease-fire in Gaza boosted geopolitical tensions in the Middle East and boosted the risk premium for oil prices. In addition, today’s rally in the S&P 500 to a 3-week high shows confidence in the economic outlook that is positive for energy demand and crude prices.
In a bullish factor for crude oil prices, Saudi Arabia’s state owned Aramco Sunday raised crude prices for June delivery to Asian customers by 90 cents a barrel, above the consensus of 60 cents.
Reduced hopes for a Israel-Hamas ceasefire are bullish for crude oil prices. Weekend talks for a cease-fire broke up inconclusively after Israel said it wouldn’t agree to the Hamas demand to end the war completely to gain the release of the hostages. Also, Israel’s military has begun moving civilians out of Rafah, a possible sign that Israel will soon launch military operations in the city.
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 -14% w/w to 57.76 million bbl as of May 3.
Reduced crude demand in India, the world’s third-largest crude consumer, is negative for oil prices after India’s March oil demand fell -0.6% y/y to 21.09 MMT.
Crude prices have underlying support from the Israel-Hamas war and concern that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran. Also, 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.
Crude has support from the recent Ukrainian drone attacks on Russian refineries that damaged several Russian oil processing facilities, limiting Russia’s fuel exporting capacity. Russia’s fuel exports in the week to April 28 fell by -120,000 bpd from the prior week to 3.43 million bpd. JPMorgan Chase said it sees 900,000 bpd of Russian refinery capacity that could be offline “for several weeks if not months” from the attacks, adding $4 a barrel of risk premium to oil prices.
Crude prices have support from April 3 when OPEC+, at its monthly meeting, did not recommend any changes to their existing crude output cuts, which 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.
Last Wednesday’s EIA report showed that (1) US crude oil inventories as of April 26 were -2.6% below the seasonal 5-year average, (2) gasoline inventories were -3.2% below the seasonal 5-year average, and (3) distillate inventories were -6.9% below the 5-year seasonal average. US crude oil production in the week ending April 26 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 3 fell by -7 rigs to 499 rigs, modestly 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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