Crude Oil Prices Fall on Global Energy Demand Concerns

Nov WTI crude oil (CLX22) on Thursday closed down -0.92 (-1.12%), and Nov RBOB gasoline (RBX22) closed down -5.90 (-2.40%).  

Crude oil and gasoline prices Thursday fell on continued concern about a global recession caused by hawkish global central banks.  Also, a slump in the S&P 500 Thursday to a 1-3/4 year low undercuts confidence in the economic outlook, which is bearish for energy demand.  Crude prices Thursday initially posted moderate gains on a weaker dollar, reduced oil production in the Gulf of Mexico due to Hurricane Ian, anad reports that OPEC+ has begun discussions about reducing crude output at its meeting next week. 

Crude prices were undercut Thursday after Germany's leading research institutes reduced their German 2022 GDP forecast to +1.4% from an April forecast of +2.7% and cut their German 2023 GDP forecast to -0.4% contraction from an April forecast of a +3.1% expansion.  Germany is Europe's biggest economy.

A bullish factor for crude prices is the expectation that OPEC+, at its October 5 meeting, will agree to cut its crude production by at least 500,000 bpd in an attempt to shore up prices.   RBC Capital Markets said OPEC+ might cut its crude output by as much as 1.0 million bpd.

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.

Wednesday'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.

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