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 * /Barchart
 * /Crude Prices Slip on Dollar Strength and Hawkish Fed




CRUDE PRICES SLIP ON DOLLAR STRENGTH AND HAWKISH FED

May 21, 202417:38 GMT+2

CL1!+0.93%

June WTI crude oil (CLM24) today is down -0.62 (-0.78%), and June RBOB gasoline
(RBM24) closed down -1.74 (-0.69%).

Crude oil and gasoline today are moderately lower for a second day. A stronger
dollar today is bearish for energy prices. Also, Fed comments today signal
policymakers want to keep interest rates higher for longer, which could weigh on
economic growth and energy demand. Fed Governor Waller said he needs to see
"several more" months of good inflation figures to begin interest rate cuts.

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+. Also, Russian crude processing averaged 5.45
million bpd in the first half of May, up 4% above April's level as refineries
recovered from Ukrainian drone strikes. In addition, Russia's fuel exports have
increased as refineries came back online after being damaged by Ukrainian drone
attacks. Russian fuel exports in the week to May 19 rose about 140,000 bpd from
the prior week to 3.39 million bpd.

An increase in crude oil in floating storage is bearish 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 rose +15% w/w to 69.27
million bbl as of May 17.

Crude oil prices have underlying support from concern about the Hamas-Israel
conflict. Israel's military is poised to conduct major military operations in
the southern Gaza city of Rafah despite opposition from the Biden
administration. There is also concern that the war might spread to Hezbollah in
Lebanon or even to a direct conflict with Iran. Meanwhile, 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.

In a bearish factor for crude oil prices, the International Energy Agency (IEA)
last Wednesday cut its 2024 global fuel consumption estimate to 1.1 million bpd,
down -140,000 bpd from an April forecast.

A negative factor for crude prices is concern that some OPEC+ members want to
boost their crude production levels, which may lead to infighting among the
group when it meets on June 1. Bloomberg reported last Tuesday that the UAE,
Iraq, Algeria, and Kazakhstan aim to boost their production quotas. Saudi Arabia
has pushed back against boosting output and has urged OPEC+ to be cautious about
adding barrels to the market. The market consensus is that the 22-nation
alliance will prolong its current crude production cuts into the second half of
this year. OPEC+ members, at their last meeting on April 3, left their existing
production cuts of about 2 million bpd in place until the end of June.

Last Wednesday's EIA report showed that (1) US crude oil inventories as of May
10 were -3.9% below the seasonal 5-year average, (2) gasoline inventories were
-1.2% below the seasonal 5-year average, and (3) distillate inventories were
-7.1% below the 5-year seasonal average. US crude oil production in the week
ending May 10 was unchanged w/w at 13.1 million bpd, slightly 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
17 rose by +1 rig to 497 rigs, slightly 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.

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.

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