Crude Oil Falls Back on Stronger Dollar and Weak US Consumer Sentiment Report

Rich Asplund Barchart Fri May 10, 11:06AM CDT
Oil - Offhsore Oil Platform in Ocean

June WTI crude oil (CLM24) today is down -0.15 (-0.19%), and June RBOB gasoline (RBM24) is down -0.0180 (-0.71%).

June WTI crude oil prices today edged to a new 1-1/2 week high but then lost ground.  Crude oil prices are consolidating just mildly above Wednesday's 1-month low.  Crude oil prices are seeing some downward pressure today from the mildly higher dollar and today's large -9.8 point drop in the University of Michigan's preliminary-May US consumer sentiment index to a 6-month low of 67.4, which was negative for US consumer spending and travel intentions.

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 ongoing 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.

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.  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 -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 bearish for oil prices after India's March oil demand fell -0.6% y/y to 21.09 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.  

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 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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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.