DTN Oil

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange rallied on the first day of trading for the third quarter following Thursday's drubbing, as supply disruptions in Libya and a planned strike by Norwegian oil workers offset slowing economic growth in the United States.

Friday's advance also comes in front of the three-day Independence Day holiday weekend in the United States, with AAA having forecasted 42 million Americans would hit the roadways from June 30 through July 4th, which would be a record if realized.

Implied gasoline demand in the United States fell to a 12-week low 8.505 million bpd during the week-ended June 17 before jumping 417,000 bpd last week, Energy Information Administration data show, but still trailed the year-ago pace by 251,000 bpd or 2.7%. Over the four-week period ended June 24, gasoline supplied to the U.S. market was down 183,000 bpd or 2%, with record-high retail gasoline prices that crested over $5 per gallon nationally for seven days through June 17 prompting some drivers to cut back. Retail prices have declined since the June highs, with AAA indicating the national average at $4.842 gallon Friday, having now fallen for 17 consecutive days.

Inflation pressures are having an impact on consumer spending, with Thursday's release by the Bureau of Economic Analysis of its Personal Consumption Expenditures Price Index showing spending grew a modest 0.2% in May, down from a 0.6% increase in April and a 1.2% jump in March. The year-on-year comparison held unchanged in May at 6.3% while down from 6.6% in March when some market followers believed inflation peaked.

Slowing consumer spending is joining a downshift in manufacturing activity, with the Institute of Supply Management reporting its manufacturing index fell from 56.1% in May to 53% in June, which was below expectations for a 55% reading. While readings above 50% indicate growth, May's manufacturing activity was the weakest since June 2020, which followed contraction during April-May 2020 amid the COVID-19 pandemic lockdowns.

"There are signs of new order rate softening -- cited in 17 percent of general comments, compared to 10 percent in May -- but the root cause is difficult to determine: (1) demand reduction, (2) adjustment for excessive lead times, causing order rate adjustments or (3) a combination of both," said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

ISM's manufacturing index along with U.S. Census Bureau's construction spending report released today showing a 0.1% decline in May prompted the Atlanta Federal Reserve Bank's GDPNow tracker to signal a 2.1% contraction in second quarter U.S. gross domestic product. Earlier this week, BEA in its third estimate said first quarter GDP declined 1.6%. If the Atlanta Bank's tracker is accurate, the U.S. economy is in recession, with two consecutive quarters the technical definition for recession.

Demand for diesel, which correlates closely with economic activity in the United States considering its primary use is by commercial and industrial sectors, fell to an 11-week low at 3.568 million bpd during the week-ended June 24, EIA data show.

Ahead of an extended weekend, and with a targeted strike by 74 offshore oil workers in Norway on July 5th, traders covered short positions. An OPEC+ Joint Technical Committee earlier this week revised lower a global oil market surplus by the end of the year from 1.4 million bpd to 1 million bpd.

Today, a Reuters survey estimated crude oil production by Organization of the Petroleum Exporting Countries declined 100,000 bpd from May to 28.52 million bpd in June, which would mark the second monthly decline by the oil cartel following a 176,000-bpd falloff in May from April according to OPEC's most recent Monthly Oil Market Report.

Lack of investment in 2020 amid the COVID-19 pandemic, antigovernment militias in Nigeria, and a battle for political leadership in Libya are factors in output slippage by OPEC.

Libya's National Oil Corporation expanded a force majeure to two export terminals and an oil field, joining force majeure at the Brega and Zueitina terminals. NOC said it had no choice but to expand the production outages because Libya's central bank and Finance Ministry failed to provide the hard currency needed to sustain operations. NOC said the latest outages have led to a production decline of 865,000 bpd, which compares with a production rate of 1.069 million bpd in March -- the most recent month with output above 1 million bpd. Oil exports that have ranged between 365,000 and 409,000 bpd are set to decline further.

In Norway, Reuters reports 74 offshore oil workers at Equinor's Gudrun, Oseberg South and Oseberg East platforms will go on strike July 5, citing a statement from the Lederne trade union on June 30. The strike would shut-in 83,000 bpd of oil production, about 4% of Norway's output, with Lederne noting the strike would not affect natural gas production.

NYMEX August West Texas Intermediate futures settled $2.67 higher at $108.43 bbl, and ICE September Brent crude gained $2.60 on a contract basis to a $111.63 bbl settlement, although gapped down $1.77 on the spot continuous chart. NYMEX August RBOB futures reversed off a $3.5075 seven-week low on the spot continuous chart to settle 15.15cts higher at $3.6878 gallon. August ULSD futures moved off a $3.8136 five-week low on the spot continuous chart to settle at $3.9389 gallon for a 10.84cts gain.

Brian L. Milne can be reached at brian.milne@dtn.com