Supply Concerns Outweighed Fears that Further Interest Rate Hikes Could Slow Economic Growth

Recap:  The oil market continued to trend higher on Friday as supply concerns outweighed fears that further interest rate hikes could slow economic growth. The market was well supported by several fundamental factors, with Vortexa reporting that there was currently 10.5 million barrels of Saudi crude in floating storage off the Egyptian Red Sea port of Ain Sukhna, down by almost half from mid-June. In Norway, Equinor halted output at its Oseberg East oil field in the North Sea due to staffing shortages, while in Mexico a fire broke out at the Nohoch-A offshore platform run by Pemex at the Cantarell complex. The oil market sold off early in the session to a low of $71.19 after U.S. jobs report did little to calm fears of further interest rate increases. However, the market bounced off its lows and rallied higher during the remainder of the session as the supportive fundamental news regarding supply more than offset the economic concerns. The market extended its gains to over $2 as it rallied to a high of $73.92 ahead of the close. The August WTI contract settled up $2.06 at $73.86 and the September Brent contract settled up $1.95 at $78.47. The WTI contract settled up $3.22 or 4.56% on the week, the largest percentage gain since the week ending April 6th. The product markets ended the session sharply higher as well, with the heating oil contract settling up 7.97 cents at $2.5591 and the RB market settling up 4.55 cents at $2.5893. 

Technical Analysis:  The oil market will likely retrace some of its sharp gains on Monday before it continues to trade higher within its trading range seen over the last few weeks. The market is seen finding resistance at its high of $73.92, $75.06, $75.70, $76.11, $76.69 and $76.92. Support is however seen at its low of $71.19, $70.22, $69.90, $69.69, $69.53, $68.93 and $67.05.

Fundamental News:  According to data from oil analytics firm Vortexa, there are currently 10.5 million barrels of Saudi crude in floating storage off the Egyptian Red Sea port of Ain Sukhna, half the volume that built up there in mid-June. On June 14th, Vortexa observed 19.5 million barrels of Saudi crude on board 10 very large crude carriers outside Ain Sukhna, most of which had loaded in the second half of May. Vortexa said the last time Saudi crude was stored on ships in such big volumes was in the second quarter of 2020, when the COVID-19 pandemic drove a collapse in global oil demand. Currently, five VLCCs laden with Saudi crude are in floating storage off Ain Sukhna.

Commerzbank lowered its Brent oil price forecast for the end of the year to $85/barrel from a previous forecast of $90/barrel. It sees WTI crude trading at $80/barrel at the end of 2023. It also forecast Brent prices at $90/barrel and WTI prices at $85/barrel at the end of 2024.

Refinitiv analyst, Raj Rajendran, said diesel imports into Europe so far in July are expected to reach 2.9 million tons. June imports into the region reached 6.7 million tons, up from 6.15 million tons in the previous month. Separately, Refinitiv tracking data showed that Northwest European gasoline exports to the U.S. and West Africa in June reached 1.73 million tons. July shipments planned so far reached 430,000 tons.

U.S. energy firms this week added oil and natural gas rigs for the first time in 10 weeks, due to the largest weekly increase in gas rigs since October 2016. Baker Hughes reported that the oil and gas rig count increased by 6 to 680 in the week ending July 7th. U.S. oil rigs fell five to 540 this week, their lowest since April 2022, while gas rigs increased by 11 to 135, the highest level since early June.

IIR Energy said U.S. oil refiners are expected to shut about 259,000 bpd of capacity in the week ending July 7th, increasing available refining capacity by 785,000 bpd. Offline capacity is expected to decrease to 222,000 bpd in the week ending July 14th and fall further to 130,000 bpd for the week ending July 21st.

Early Market Call - as of 9:00 AM EDT

WTI - August $73.08, down 77 cents

RBOB - August $2.5590, down 3.03 cents