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.

Looking at the daily chart for the Light Sweet Crude Oil September Futures contract (/CLU26) we can see prices were able to trade back above the 200-Day Simple Moving Average during yesterday's session. Prices tested the 20-Day and 50-Day SMA levels on Monday but were unable to trade higher, leading to a sharp sell-off. 

The Daily Technical Summary from Hightower Research has support levels at 73.79 and resistance levels at 76.25 and 77.70. Both resistance levels were tested during yesterday’s trading.

According to the CFTC Commitment of Traders report released July 28^th managed money trades increased their long position by +6,490 contracts and decreased their short position by -22,474 contracts. Managed money traders are net long 92,943 contracts as of the time the report was published 

The 14-Day Relative Strength Index at 46.15% indicates slightly more sellers than buyers.

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