Crude Prices Plunge on Chinese Demand Concerns

Oct WTI crude oil (CLV22) this morning is down -3.36 (-3.87%), and Oct RBOB gasoline (RBV22) is down -4.72 (-1.95%).  Oct Nymex natural gas (NGV22) is down by -0.255 (-3.13%).

Crude oil and gasoline prices this morning tumbled to 7-1/4 month lows.  Today's rally in the dollar index to a 20-year high is undercutting commodity prices, including crude oil.  Also, crude prices are falling on concern that China's additional pandemic lockdowns will undercut economic activity and energy demand.  Technical selling exacerbated losses in crude futures today after the 50-day moving average for WTI crude futures crossed below the 200-day moving average for the first time in 2 years.

Oct nat-gas prices this morning extended Tuesday's sharp losses to a 1-month low.   Negative carry-over from an -11% plunge in European nat-gas prices today is weighing on U.S. nat-gas.  Also, ramped-up U.S. nat-gas production is negative for prices after lower-48 state U.S. nat-gas production Tuesday rose to a record 100.9 bcf.  Nat-gas prices are also being undercut by cooler U.S. temperatures that will reduce nat-gas demand from electricity providers to provide electricity for air-conditioning.  The Commodity Weather Group today said that normal or slightly below normal temperatures are expected across portions of the Midwest, South, and West Coast from September 12-16.

A bearish factor for crude is the outlook for reduced crude oil demand in China, the world's largest crude importer.  About 65 million people across China are now subject to restrictions in their mobility due to pandemic lockdowns.  Chinese authorities Tuesday ordered a pandemic lockdown in Guiyang, a city of 6.1 million people, and extended a lockdown in Chengdu, a city of 21 million, through Wednesday.  Also, today's Chinese trade news was bearish for economic growth and energy demand after China Aug exports rose +7.1% y/y, weaker than expectations of +13.0% y/y.  Chinese refineries in July handled the least amount of oil since March 2020 as Covid lockdowns and refinery shutdowns for maintenance undercut crude demand.  As a result, China's apparent oil demand in July fell -9.7% y/y to 12.16 million bpd, and China's Jan-July apparent oil demand is down -4.6% y/y to 12.74 million bpd.  

Crude oil prices garnered support after OPEC+ on Monday agreed to cut its crude production level by 100,000 bpd in October, its first cut in production in more than a year.  Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said, "the simple tweak in production shows that OPEC+ will be attentive, preemptive and pro-active" in managing crude markets.

Reduced crude production in Libya is supportive of oil prices after Libya's state-run National Oil Corp said Tuesday that Libyan crude production had dropped more than -100,000 bbl to 1.1 million bpd, down from the 1.226 million bpd it produced last week.

Oil prices are seeing support from the dim prospects for a nuclear deal with Iran that would lift sanctions against Iran and allow its crude back onto the global markets.  The European Union's chief negotiator said Monday that the chances of an imminent agreement between Iran and world powers on a nuclear deal have faded.

In a bullish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week fell -1.5% w/w to 93.09 million bbls in the week ended September 2.

OPEC+ production in August rose by +590,000 bpd to a 2-1/4 year high of 29.640 million bpd, according to the IEA, but is still running more than 2 million bpd below quotas due to various supply disruptions and capacity constraints.  Nigerian and Libyan crude output has fallen in recent months due to damaged pipelines in Nigeria and political unrest in Libya, undercutting the overall OPEC+ production level.

Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of August 26 were -6.3% below the seasonal 5-year average, (2) gasoline inventories were -7.5% below the seasonal -year average, and (3) distillate inventories were -23.8% below the 5-year seasonal average.  U.S. crude oil production in the week ended August 26 rose +100,000 bpd to 12.1 million bpd, which is only -1.0 million bpd (-7.6%) 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 Sep 2 fell by -9 rigs to 596 rigs from the 2-1/4 year high of 605 rigs posted in the week ended July 29.  U.S. active oil rigs have more than tripled from the 17-year low of 172 rigs seen in Aug 2020, signaling an increase in U.S. crude oil production capacity.

• Nat-Gas Plunges on Record Production and Seasonal Temps
• Crude Slightly Lower on Chinese Demand Concerns
• Nat-Gas Plunges to 3-Week Low
• Crude Climbs on Dollar Weakness and a Setback in Iran Nuclear Negotiations