Crude Jumps on Reports Russia Will Push for OPEC+ to Cut Output

Nov WTI crude oil (CLX22) this morning is up +2.16 (+2.82%), and Nov RBOB gasoline (RBX22) is up +8.70 (+3.80%).  Oct Nymex natural gas (NGV22) is up by +0.037 (+0.54%).

Crude oil and gasoline prices this morning are moderately higher.  A weaker dollar today has sparked short covering in energy futures.   Also, a report that Russia is pushing OPEC+ to cut crude production is boosting oil prices.

Oct nat-gas prices today erased early losses and rallied moderately on positive carry-over from a +19% surge in European nat-gas prices.  European nat-gas prices soared today after Gazprom PJSC warned there's a risk Russia will sanction Ukraine's Naftogaz, which would prevent it from being able to pay transit fees, and therefore put at risk gas flows to Europe via Ukraine.  Nat-gas prices today initially moved lower on concern that Hurricane Ian will knock out demand for gas-fired power generation in the U.S Southeast.

Crude prices jumped today after a report from Reuters said that Russia will propose that OPEC+ reduce its crude production by 1.0 million bpd at the group's next meeting in October.

An increase in the crude crack spread is bullish for crude prices after the crack spread today jumped to a 2-week high.  A higher crack spread encourages refiners to boost their crude purchases and refine the crude into gasoline and distillates.  

Stronger-than-expected U.S. economic news today is bullish for energy demand and crude prices.  The Conference Board U.S. Sep consumer confidence index rose +4.4 to a 5-month high of 108.0, stronger than expectations of 104.6.  Also, Aug new home sales unexpectedly rose +28.8% m/m to a 5-month high of 685,000, stronger than expectations of a decline to 500,000.  In addition, Aug capital goods new orders nondefense ex-aircraft & parts, a proxy for capital spending,  rose +1.3% m/m, stronger than expectations of +0.2% m/m and the biggest increase in 7 months.

A negative factor for crude was today's action by Goldman Sachs to cut its Q3 WTI crude price forecast to $92 a bbl from a previous estimate of $105 a bbl and cut its Q4 crude price forecast to $95 a bbl from $120 a bbl, citing a surging dollar and falling demand expectations.

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.

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) recently 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 bearish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week rose +20% w/w to 112.51 million bbls in the week ended September 23.

Last Wednesday'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 23 rose by +3 rigs to 602 rigs, just 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.

• Nat-Gas Prices Rebound as Hurricane Ian Enters Gulf of Mexico
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• Crude Plunges on Recession Concerns and Dollar Strength