June WTI crude oil (CLM25) Wednesday closed down -2.21 (-3.66%), and June RBOB gasoline (RBM25) closed down -0.0393 (-1.91%).

Crude oil and gasoline prices on Wednesday extended this week’s sharp losses, with crude sinking to a 3-week low and gasoline tumbling to a 2-week low.  Concerns about global energy demand are undercutting crude prices after the US economy in Q1 contracted by the most in 3 years, and China’s manufacturing activity this month contracted by the most in 16 months.   Also, Wednesday’s stronger dollar was bearish for energy prices.  Losses in crude accelerated Wednesday after Reuters reported that Saudi Arabian officials have been telling allies and industry experts that it can endure a sustained period of depressed prices.  Crude prices remained lower even after weekly EIA crude and gasoline inventories fell more than expected.  

Fears about the oversupply of crude are bearish for prices after Reuters reported Wednesday that Saudi Arabia said it could withstand a period of depressed oil prices, bolstering fears of a prolonged period of higher production from the OPEC+ alliance.   Last Wednesday, Reuters reported that several OPEC+ members would suggest accelerating oil output hikes in June for a second consecutive month.  Saudi Arabia could boost its crude production to reduce crude prices and punish those OPEC+ members that produce above their assigned limits, further flooding the global markets with crude.  OPEC+ members will meet on May 5 to discuss the June output plan.

Wednesday’s US and Chinese economic news were weaker-than-expected and bearish for energy demand and crude prices in the world’s two largest crude-consuming countries.  The US Apr ADP employment change rose +62,000, weaker than expectations of +115,000 and the smallest increase in 9 months.  Also, Q1 GDP fell -0.3% (q/q annualized), weaker than expectations of -0.2% and the steepest pace of contraction in 3 years.  In addition, China’s Apr manufacturing PMI fell -1.5 to 49.0, weaker than expectations of 49.7 and the steepest pace of contraction in 16 months.  

The US and Iran reported progress in talks over the weekend on a deal over Iran’s nuclear program, with negotiators from both sides agreeing to meet again in Europe this week.  Any agreement on Iran’s nuclear program could prompt the US to remove export restrictions on Iranian crude oil, which would boost oil supplies on the global market and be bearish for crude prices.  

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 +34% w/w to 90.73 million bbl in the week ended April 25, the highest in 9 months.

Crude prices have a negative carryover from April 3, when OPEC+ said it would boost crude production in May by 411,000 bpd, much more than the +138,000 bpd of crude production it added this month.  OPEC+ is boosting output to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production.  OPEC+ had previously planned to restore production between January and late 2025, but now that production cut won’t be fully restored until September 2026.  OPEC Mar crude production rose +80,000 bpd to a 13-month high of 27.43 million bpd.

Stronger crude demand in China, the world’s largest crude importer, supports oil prices.  Reuters reported earlier this month that China’s Mar crude imports rose to 12.1 million bpd, the highest since August 2023.

In a supportive factor for crude oil prices, the US on January 10 imposed new sanctions on Russia’s oil industry that could curb global oil supplies.  The measures targeted Gazprom Neft and Surgutneftgas, which exported about 970,000 bpd of Russian crude in the first 10 months of 2024, accounting for about 30% of its tanker flow, according to Bloomberg data.  The US also targeted insurers and traders linked to hundreds of tanker cargoes.  Russian oil product exports in March rose to a 5-month high of 3.45 million bpd, according to data compiled by Bloomberg from analytics firm Vortexa.  Weekly vessel-tracking data from Bloomberg showed Russian crude exports rose by +40,000 bpd w/w to 3.39 million bpd in the week to April 27.

Wednesday’s weekly EIA report was mixed for crude and products.  On the bearish side, EIA distillate inventories unexpectedly rose +937,000 bbl versus expectations of a -1.7 million bl draw.  Also, crude supplies at Cushing, the delivery point of WTI futures, rose +682,000 bbl.  On the positive side, EIA crude inventories fell -2.7 million bbl, a larger draw than expectations of -575,000 bbl.  Also, EIA gasoline supplies fell -4.0 million bbl, a larger draw than expectations of -1.4 million bbl.  

Wednesday’s EIA report showed that (1) US crude oil inventories as of April 25 were -6.6% below the seasonal 5-year average, (2) gasoline inventories were -3.9% below the seasonal 5-year average, and (3) distillate inventories were -11.9% below the 5-year seasonal average.  US crude oil production in the week ending April 25 was unchanged w/w to 13.465 million bpd, modestly below the record high of 13.631 million bpd from the week of December 6.

Baker Hughes reported last Friday that active US oil rigs in the week ending April 25 rose +2 to 483 rigs, moderately above the 3-1/4 year low of 472 rigs posted on January 24.  The number of US oil rigs has fallen over the past two years from the 5-year high of 627 rigs posted in December 2022.