Crude Climbs after EIA Inventories Unexpectedly Decline

Nov WTI crude oil (CLX22) this morning is up +2.50 (+3.18%), and Nov RBOB gasoline (RBX22) is up +6.10 (+2.57%).  Oct Nymex natural gas (NGV22) is down by -0.080 (-1.20%).

Crude oil and gasoline prices this morning are moderately higher.  A weaker dollar today is supporting crude prices, along with a rally in stocks that boosts optimism about the economic outlook and energy demand.  In addition, crude prices extended their gains this morning on a bullish EIA inventory report that showed unexpected supply declines of crude, gasoline, and distillate inventories.

Oct nat-gas this morning is moderately lower.  Concern that Hurricane Ian will inflict catastrophic damage to Floria and reduce nat-gas demand is weighing on prices.  Also, the outlook for mild U.S. fall temperatures that curb heating demand for nat-gas is weighing on prices.  The Commodity Weather Group said it expects above-normal temperatures in the western and central U.S. from October 2-6, with normal temperatures expected in the East.  

Crude prices had carry-over support from Tuesday when a report from Reuters said that Russia would propose that OPEC+ reduce its crude production by 1.0 million bpd at the group's next meeting in October.

Crude garnered support Tuesday after the Bureau of Safety and Environmental Enforcement said U.S. energy companies idled 11% or 190,358 bbl of daily crude production in the Gulf of Mexico due to the approach of Hurricane Ian.  

An increase in the crude crack spread is bullish for crude prices after the crack spread today rose to a 4-week high.  A higher crack spread encourages refiners to boost their crude purchases and refine them into gasoline and distillates.  

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.  In addition, 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 on 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.

Today's weekly EIA report was bullish for crude prices.  The EIA reported crude inventories unexpectedly fell -215,000 bbl versus expectations of a +2.0 million bbl build.  Also, EIA gasoline supplies unexpectedly fell -2.42 million bbl to a 10-month low versus expectations of a +500,000 bbl build.  In addition, EIA distillate stockpiles unexpectedly fell -2.89 million bbl versus expectations of a +600,000 bbl build.   A bearish factor was the +692,000 bbl increase in crude supplies at Cushing, the delivery point of WTI futures.

Today's EIA report showed that (1) U.S. crude oil inventories as of September 23 were -1.9% below the seasonal 5-year average, (2) gasoline inventories were -6.3% below the seasonal 5-year average, and (3) distillate inventories were -20.0% below the 5-year seasonal average.  U.S. crude oil production in the week ended September 23 fell -0.8% w/w to 12.0 million bpd, which is only -1.1 million bpd (-8.4%) 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 Fall on Record U.S. Production
• Crude Jumps on Reports Russia Will Push for OPEC+ to Cut Output
• Nat-Gas Prices Rebound as Hurricane Ian Enters Gulf of Mexico
• Crude Oil Prices Pressured by a Soaring Dollar