Crude Prices Plummet on Chinese Demand Concerns

Oct WTI crude oil (CLV22) on Wednesday closed down -4.94 (-5.69%), and Oct RBOB gasoline (RBV22) closed down -10.82 (-4.48%).  

Crude oil and gasoline prices Wednesday tumbled to 7-3/4 month lows.  Crude prices sold off on concern that China's additional pandemic lockdowns will undercut economic activity and energy demand.  Technical selling exacerbated losses in crude futures Wednesday after the 50-day moving average for WTI crude futures crossed below the 200-day moving average for the first time in 2 years.

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, Wednesday'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.

Crude prices dropped about -25 cents/bbl from their Wednesday afternoon closing level after the API reported that U.S. crude supplies rose +3.6 million bbl last week.  The consensus is for Thursday's weekly EIA crude inventories to fall -1.9 million bbl.

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 September 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.

• Crude Prices Plunge on Chinese Demand Concerns
• Crude Shakes off Reduced OPEC+ Output due to Chinese Demand Concerns
• Crude Slightly Lower on Chinese Demand Concerns
• Crude Climbs on Dollar Weakness and a Setback in Iran Nuclear Negotiations