Crude Rises on Stronger-Than-Expected Chinese Economic News

Oct WTI crude oil (CLV22) this morning is up +1.08 (+1.27%), and Oct RBOB gasoline (RBV22) is up +0.42 (+0.17%).  Oct Nymex natural gas (NGV22) is down by -0.313 (-3.76%).

Crude oil and gasoline prices this morning are moderately higher as a weaker dollar sparked short-covering in energy futures.  Also, stronger than expected Chinese economic reports today supported hopes for increased energy demand.  However, crude oil prices were undercut by today's decline in the S&P 500 to a 1-3/4 month low, which reduces confidence in the economic outlook.

Oct nat-gas prices this morning are moderately lower on negative carry-over from Thursday when the U.S. Labor Department said a national railway strike was averted when companies and negotiators representing 100,000 rail workers agreed to a preliminary accord.   Nat-gas prices are also under pressure from expectations for cooler U.S. temperatures, which will curb nat-gas demand from electricity providers to run air-conditioning.  Maxar Technologies said today that weather forecast trends are for cooler Midwest temperatures from September 26-30.

Better-than-expected Chinese economic news is bullish for crude demand and prices in China, the world's largest crude importer.  China Aug industrial production rose +4.2% y/y, stronger than expectations of +3.8% y/y and the biggest increase in 5 months.  Also, Aug retail sales rose +5.4% y/y, stronger than expectations of +3.3% y/y and the biggest increase in 11 months.

A bearish factor for crude was Thursday's report from Standard Chartered that said the world oil market swung into a "large surplus" from the deficit seen earlier this year, with an overhang of 1.82 million bpd this quarter.

Crude oil prices retreated Thursday after the DOE said it does not need a price trigger to restock the SPR and that it doesn't plan on refilling it until after fiscal 2023.  Crude prices on Wednesday earlier rallied after a Bloomberg report said the Biden administration was considering buying crude oil to refill the SPR when prices fall below $80 a barrel.  The SPR is currently at its lowest level since 1984 after the Biden administration in March ordered the release of 180 million barrels of oil from the reserve to curb surging oil prices.  

Crude oil prices found support Wednesday after China announced it is easing pandemic lockdowns in Chengdu, a city of 21 million people, which should boost economic activity and energy demand.  China's Covid lockdowns have hurt Chinese energy demand in recent months.  Chinese refineries in July handled the least amount of oil since March 2020 as Covid lockdowns and refinery shutdowns for maintenance undercut crude demand.  Also, recent crude demand remains weak as China's Bureau of Statistics today reported China Aug crude processing rose just +0.9% from July and was still down -8% y/y to 12.69 million bpd.

Oil prices are also 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 International Atomic Energy Agency (IAEA) on Monday said that "the information gap is bigger and bigger" on Iran's recent nuclear activities.  Also, the European Union's chief negotiator said Saturday that "in light of Iran's failure to conclude the agreement on the table, we will consult with our international partners on how best to deal with Iran's continued nuclear escalation."

Crude oil prices garnered support after OPEC+ last 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 last 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.

In a bearish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week rose +11% w/w to 92.32 million bbls in the week ended September 9.

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.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of September 9 were -2.6% below the seasonal 5-year average, (2) gasoline inventories were -6.2% below the seasonal 5-year average, and (3) distillate inventories were -20.5% below the 5-year seasonal average.  U.S. crude oil production in the week ended September 9 was unchanged at 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 9 fell by -5 rigs to 591 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 Sharply Lower as DOE Says No Near-Term Plan to Refill SPR
• Crude Tumbles as DOE Says No Near-Term Plan to Refill SPR
• Crude Rallies as China Eases Some Pandemic Lockdowns
• Crude Rallies as China Eases Some Pandemic Lockdowns