Crude Oil Rallies on Tighter Inventories and Signs of Stronger Energy Demand

October WTI crude oil (CLV25) on Thursday closed up +0.81 (+1.29%), and October RBOB gasoline (RBV25) closed up +0.0281 (+1.43%).

Crude oil and gasoline prices rallied on Thursday, with crude posting a 2-week high and gasoline posting a 2.5-week high.  Crude and gasoline have carryover support from Wednesday, when weekly EIA crude and gasoline inventories fell more than expected.  Also, strength in global manufacturing activity is supportive for energy demand and crude prices.  Gains in crude were limited after the dollar index (DXY00) rose to a 1.5-week high.

Signs of strength in global manufacturing activity are bullish for energy demand and crude prices.  The US Aug S&P manufacturing PMI unexpectedly rose +4.5 to a 3-year high of 53.3, better than expectations of a decline to 49.7.  Also, the Eurozone Aug S&P manufacturing PMI unexpectedly rose +0.7 to a 3-year high of 50.5, stronger than expectations of a decline to 49.5.

Oil prices have support from doubts about negotiations for an end to the Russian-Ukrainian war after Russian Foreign Minister Lavrov said Russia should have a say in security arrangements for Ukraine, and that any unilateral guarantees would be “hopeless.”

Concern about higher OPEC production is bearish for crude prices after OPEC+ on August 2 endorsed an additional 547,000 bpd increase in its crude production for September 1.  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.  OPEC+ has 1.66 million bpd of supplies that are currently due to remain offline until late 2026.  OPEC July crude production fell by -20,000 bpd to 28.31 million bpd.

A decline in crude oil held worldwide on tankers is bullish for oil prices.  Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days fell by -12% w/w to 82.49 million bbl in the week ended August 15.

Wednesday’s weekly EIA report showed that (1) US crude oil inventories as of August 15 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 -13.0% below the 5-year seasonal average.  US crude oil production in the week ending August 15 rose by +0.4% w/w to 13.382 million bpd, modestly below the record high of 13.631 million bpd posted in the week of 12/6/2024.