NYMEX ULSD    $3.8664 UP $.0846

NYMEX Gas      $3.8317 UP $.0207

Crude oil and gasoline prices Wednesday settled moderately higher.  Tightness in global crude supplies is offsetting Chinese demand concerns after Chinese Premier Li Keqiang said China’s economic difficulties are worse than in 2020.  However, crude prices fell back from their best levels Wednesday on a stronger dollar and a mostly bearish EIA inventory report.

Crude oil has support on Tuesday’s comments from Saudi Arabia’s Foreign Minister, who said there is nothing more his country can do to tame the oil markets, which implies it won’t boost its crude production further.

A bearish factor for crude is concern about Chinese energy demand after Chinese Premier Li Keqiang said Wednesday that “economic indicators in China have fallen significantly, and difficulties in some aspects and to a certain extent are greater than when the epidemic hit us severely in 2020.”

Oil prices are being undercut by the outlook for Chinese energy demand to remain weak this year.  UBS cut its China 2022 GDP forecast to 3.0% from 4.2%, citing the impact of its Covid Zero policy, while JPMorgan Chase cut its 2022 China GDP forecast to 3.7% from 4.3%, citing a deep contraction in Q2 because of China’s Covid restrictions.

The recent surge in Covid infections in China has forced the government to impose pandemic restrictions and lockdowns that have curbed economic growth and energy demand.  A resurgence of Covid infections in China has prompted the government to put some 45 million people under pandemic lockdowns.  Recent data showed that China’s apparent oil demand in April fell -6.7% y/y to 12.09 million bpd.  Also, China Apr crude processing fell -10% y/y to 51.81 MMT, a 2-year low.

A bearish factor for crude is the likelihood that the EU will be unable to approve a ban on Russian oil when EU leaders meet next week as Hungary continues to oppose the measure.  All EU member nations must approve the ban before it can become law.

Increased crude oil demand in India, the world’s third-largest crude consumer, is bullish for prices.  India’s oil ministry last Friday reported that India’s Apr crude imports rose +14.3% y/y to 20.9 MMT, the highest in 3-1/2 years.

Despite record-high prices, expectations for stronger U.S. fuel demand are bullish for crude prices.  The American Automobile Association (AAA) said it expects as many as 39.2 million people to travel this coming Memorial Day weekend, up +8.3% y/y and almost in line with 2017 levels.  Also, around 3 million people are expected to fly during the holiday weekend, surpassing 2019 levels.

The recent surge in diesel prices to a record high has provided support for the prices of gasoline and other refined products.  The diesel crack spread Apr 28 surged to a record high (data from 1986) on depleted global diesel supplies as countries worldwide shun Russian fuel supplies and scramble to obtain diesel supplies elsewhere.

Lower crude supplies from Libya are bullish for prices.  Libya April crude oil exports fell -16% m/m to 819.000 bpd, the smallest amount in 1-1/2 years, as damaged storage tanks from rebel attacks and political protests at key Libyan ports have curbed the country’s crude exports.

OPEC crude oil production in April rose by +10,000 bpd to a 2-year high of 28.700 million bpd.  OPEC was expected to increase output by +274,000 bpd in April, but supply constraints in Libya and Nigeria prevented OPEC from reaching that level.

Crude oil has support from ongoing concern that Russia may use energy as a weapon against countries that imposed sanctions for its attack on Ukraine.  Russia halted natural gas shipments to Bulgaria and Poland for failing to pay for Russian gas supplies in rubles.  Russia is trying to force its European customers to pay rubles for its oil and gas exports.

The amount of crude held worldwide in floating storage on tankers has decreased and is bullish for prices.  Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week in the week ended May 20 fell by -15% w/w to 95.72 million bbl.

Wednesday’s weekly EIA inventory report was mostly bearish for crude and products.  EIA crude inventories fell -1.02 million bbl, a smaller draw than expectations of -2.10 million bbl.  Also, EIA gasoline stockpiles fell -482,000 bbl, a smaller draw than expectations of -1.64 million bbl.  In addition, EIA distillate supplies rose +1.66 million bbl, a larger build than expectations of +1.0 million bbl.  On the bullish side, crude supplies at Cushing, the delivery point of WTI futures, fell -1.06 million bbl.

Wednesday’s weekly EIA report showed that (1) U.S. crude oil inventories as of May 20 were -14.1% below the seasonal 5-year average, (2) gasoline inventories were -7.9% below the 5-year average, and (3) distillate inventories were -21.1% below the 5-year average.  U.S. crude oil production in the week ended May 20 was unchanged w/w at 11.9 million bpd, which is -1.2 million bpd (-9.2%) below the Feb-2020 record-high of 13.1 million bpd.

Baker Hughes reported last Friday that active U.S. oil rigs in the week ended May 20 rose by +13 rigs to a new 2-year high of 576.  U.S. active oil rigs have risen sharply from the 16-1/2 year low of 172 rigs since Aug 2020, signaling an increase in U.S. crude oil production capacity.