Crude Oil Prices Retreat on Global Growth Concerns

Nov WTI crude oil (CLX22) this morning is down -1.23 (-1.47%), and Nov RBOB gasoline (RBX22) is down -1.07 (-0.45%).  Oct Nymex natural gas (NGV22) is down by -0.098 (-1.27%).

Crude oil and gasoline prices this morning erased early gains and are moderately lower.  A rally in the dollar index today to a new 20-year high is bearish for energy prices.  Also, signs of weaker U.S. fuel demand are negative for crude prices.  Crude maintained moderate losses after this morning's mostly bearish EIA inventory report.  Crude prices initially moved higher in overnight trade after Russian  President Putin vowed to step up his war against Ukraine.  

Oct nat-gas this morning is moderately lower.  The outlook for mild U.S. weather that will curb nat-gas demand from electricity providers to run air-conditioning is bearish for prices.  Forecaster Atmospheric G2 said today that below-normal temperatures are seen for the eastern half of the U.S. from September 26-30.  Losses in nat-gas prices were limited today on concern an escalation of the war in Ukraine will further disrupt Russian nat-gas supplies after Russian President Putin announced a "partial mobilization" of Russian reserve troops in Ukraine.

Concern that aggressive Fed tightening will slow economic growth and energy demand is bearish for crude prices.  The FOMC later today is expected to raise the fed funds target range by 75 bp for the third consecutive meeting.

A slump in U.S. fuel demand is bearish for crude prices.  The U.S. four-week average of distillate supplied, a measure of diesel demand, fell in the week ended September 16 below 2020 levels for a second week.  Also, U.S. gasoline demand sank after the four-week average of U.S. gasoline demand fell to the lowest seasonal level since 1997.

Another bearish factor for crude was Deutsche Bank's cut in  its Eurozone 2023 GDP forecast to a contraction of -2.2% annualized versus a July projection of -0.3%.

Weakness in global air travel has curbed jet fuel demand and is bearish for crude prices.  The global number of flights tacked by Flightradar24 dropped -5.4% m/m in the month to September 19 and was -16% lower than the equivalent of 2019 before the pandemic.

Crude oil prices have support as China eases some of its pandemic restrictions.  China last Wednesday 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, current 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 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) last Monday said that "the information gap is bigger and bigger" on Iran's recent nuclear activities.  Also, the European Union's chief negotiator recently said 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+ on September 5 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.  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.  Libya's state-run National Oil Corp said September 6 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 the previous week.

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 -7.3% w/w to 85.67 million bbls in the week ended September 16.

Today's EIA inventory report was mostly bearish for energy prices.  EIA gasoline supplies unexpectedly rose +1.57 million bbl versus expectations of a -450,000 bl draw.  Also, EIA distillate stockpiles unexpectedly rose +1.23 million bbl to a 10-1/2 month high versus expectations of a -50,000 bbl draw.  In addition, crude supplies at Cushing, the delivery point for WTI futures, rose by +343,000 bbl.  On the positive side, EIA crude inventories rose +1.14 million bbl, below expectations of a +2.2 million bbl build.

Today's EIA report showed that (1) U.S. crude oil inventories as of September 16 were -2.0% below the seasonal 5-year average, (2) gasoline inventories were -5.0% below the seasonal 5-year average, and (3) distillate inventories were -19.4% below the 5-year seasonal average.  U.S. crude oil production in the week ended September 16 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 16 rose by +8 rigs to 599 rigs, modestly below 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.

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