Crude Falls as Weak Economic Data Sparks Recession Concerns


Rich Asplund, Barchart

Jul 28, 2022


Sep WTI crude oil (CLU22) on Thursday closed down -0.84 (-0.86%), and Sep RBOB gasoline (RBU22) closed down -5.18 (-1.64%). 


Crude oil and gasoline prices on Thursday posted moderate losses.  Crude oil and gasoline prices were undercut Thursday by the news that U.S. Q2 GDP contracted for the second consecutive month, which meets one definition of a recession. 


Thursday's global economic data was bearish for energy demand and crude prices.  U.S Q2 GDP fell -0.9% (q/q annualized), weaker than expectations of a +0.4% increase.  Also, U.S. weekly initial unemployment claims fell -5,000 to 256,000, showing a weaker labor market than expectations of 250,000.  In addition, Eurozone July economic confidence fell -3.5 to a 17-month low of 99.0, weaker than expectations of 102.0.


The CEO of Shell Plc said Thursday that oil prices are more likely to rise than fall as the tightness in global supply outweighs any risks to demand.  He added that there's limited scope for extra oil supplies from OPEC+ or U.S. shale production, and the full effect of sanctions on Russia's oil production may not have yet been felt.


An increase in crude production from Libya is bearish for crude prices.  Libyan Oil Minister Mohammed Oun said Monday that Libya's crude production has risen to above 1.0 million bpd and will reach 1.2 million bpd in early August.  Libya's crude output in April collapsed after protesters forced the closure of several oil fields and ports.  As a result, crude exports from Libya, home to Africa's largest oil reserves, dropped to a 20-month low of 610,000 bpd in June.


The markets are waiting to see if OPEC+ will boost production beyond expected amounts at its upcoming meeting on August 3 in response to President Biden's recent trip to Saudi Arabia.  Oil-production limits still constrain all OPEC+ members, and an increase in output beyond current quotas would require unanimous agreement.  However, in response to U.S. political pressure, Saudi Arabia might prevail upon OPEC+ for a production hike.


Lower OPEC crude production is supportive of oil prices.  Despite the OPEC+ agreement to raise crude oil output, OPEC crude production in June fell...