Looking to the Futures

Crude oil prices bounced back yesterday with uncertainty in the Middle East causing supply concerns. An agreement between Iran and Oman to partially reopen the Strait of Hormuz is under review but a full reopening of the waterway would require negotiations between United States and Iran. Ukraine has increased drone strikes on Russian oil infrastructure providing support for prices. Russia is still showing strong exports of crude oil, adding to global supply. Latest crude oil inventories report in China show ample supply with smaller drawdowns than expected. Last weekend OPEC delegates approved an increase in crude oil production in September. Last week's EIA report shows US crude oil inventories below averages with slightly higher production week-over-week.

Crude oil prices pushed higher on Thursday as uncertainty around the proposed plan by Iran and Oman to reopen the Strait of Hormuz grows. A joint statement to keep the waterway open for two to four months is currently under review. According to Iranian officials we will not see a full reopening of the Strait until the US lifts blockades on Iranian ports. 

Yemen's Houthi rebels attacked a Saudi oil tanker with a ballistic missile in the Gulf of Aden yesterday. The Houthi's have stated they will escalate these attacks on Saudi oil tankers to prevent them from transporting oil in the Northern Red Sea. 

Ukraine has intensified attacks on Russian refineries, oil tankers, and major pipeline infrastructure over the past month. According to EA Analytics, the crude processing rate in July dropped to its lowest level in 24 years, with an average of 3.51 million bpd. The drone strikes have caused a nationwide gasoline shortage in Russia. The lack of refinery capacity has pushed crude exports higher. According to Bloomberg, Russia averaged crude exports of 4.13 million bpd in June and remains above 4 million bpd in July. 

According to Kpler, recent crude oil inventories in China show supplies dropping by -24 million bbl since early May to around 1.2 billion bbl. This lower-than-expected drawdown could cause a reduction in Chinese oil purchases. 

Also in the bear camp, last Sunday OPEC delegates approved a final increase of +188,000 bpd in crude production for September. This final increase restores the full 1.65 million bpd supply cutback that was made in 2023. Despite this decision it may be difficult for oil producing countries to meet this quota with current geopolitical tensions in the Middle East. OPEC's July crude production increased by +1.16 million bpd to 19.44 million bpd. 

Last Wednesday's EIA report indicated that US crude oil inventories were -6.2% below the seasonal 5-year average as of July 31st. Vortexa reported on Monday that crude oil stored in tankers that have been stationary for at least 7-days increased +4.6% w/w to 112.164 million bbl as of July 31st.

The Baker Hughes report released last Friday shows the number of active US oil rigs increased by +1 to 451 rigs in the week ending July 31st.

Light Sweet Crude Oil futures (/CL) have traded in a wide range since June 30, moving between 67.04 and 93.50. Prices have since pulled back and are trading below the 9-day, 50-day, and 100-day simple moving averages (SMA), while remaining above the 200-day (SMA), which recently acted as support after crude briefly moved below it and reached a low of 67.04 on July 2. From a short-term trend perspective, the 9-day (SMA) crossed above the 50-day simple moving average on July 27, which may be viewed as a bullish technical development. However, the 20-day simple moving average and 21-day exponential moving average remain below the 50-day (SMA), suggesting the broader technical picture remains mixed. Volatility has eased from mid-month levels, falling from a high near 175% to roughly 69%. Momentum has also cooled, with the relative strength index declining from near 70 to 52.6. With the RSI only slightly above 50, momentum appears more neutral and may suggest crude is beginning to stabilize.

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