Crude Rallies on Dollar Weakness and OPEC+ Output Cut Discussions

Nov WTI crude oil (CLX22) this morning is up +3.05 (+3.65%), and Nov RBOB gasoline (RBX22) is up +15.44 (+6.14%).  Nov Nymex natural gas (NGX22) is up by +0.220 (+3.40%).

Crude oil and gasoline prices this morning rallied sharply for a second day, with crude posting a 2-1/2 week high and gasoline climbing to a 5-week high.  A fall in the dollar index today to a 1-1/2 week low is bullish for energy prices.  Also, expectations for OPEC+ to cut its crude production targets when it meets on Wednesday is pushing crude prices higher.  

Nov nat-gas this morning is moderately higher.  Short-covering in nat-gas prices emerged today after forecaster Atmospheric G2 said that cooler-than-normal weather is seen across the eastern U.S. from October 9-13, which should boost heating demand for nat-gas.

Crude oil prices jumped today after delegates of OPEC+ said the group is considering cutting production by as much as 2.0 million bpd when it meets Wednesday.  The reaction to any cut in OPEC+ crude production may be tempered as a cut in output would not necessarily lead to a commensurate drop in actual barrels since many OPOEC+ producers cannot meet their production quotas in full given supply constraints.  Citigroup estimates that a cut by OPEC+ production of 1 million bpd would only reduce real-world production by 500,000-600,000 bpd.  

Strength in the crude crack spread is bullish for oil prices.  The crack spread today rose to a 6-week high, which will encourage refiners to purchase crude to refine into gasoline and distillates.

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 -17% w/w to 91.19 million bbls in the week ended September 30.

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 crude production in September rose +230,000 bpd to a 2-1/2 year high of 29.89 million bpd.  An increase in crude exports from Libya is bearish for oil prices after Libya Sep crude exports jumped +25% m/m to 1.16 million bpd, a 14-month high.

Crude oil prices have support as China eases some of its pandemic restrictions.  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 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."

Last 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 30 rose by +2 rigs to 604 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.
 

• Crude Settles Sharply Higher on Expectations for OPEC+ to Cut Production
• Crude Rallies on Expectations for OPEC+ to Cut Production
• Crude Oil Prices Fall on Global Economic Concerns
• Crude Oil Prices Under Pressure from Global Economic Concerns