Crude Prices Fall Back on Dollar Strength

Nov WTI crude oil (CLX22) this morning is down -0.35 (-0.38%), and Nov RBOB gasoline (RBX22) is down -3.54 (-1.29%).  Nov Nymex natural gas (NGX22) is up by +0.027 (+0.40%).

Crude oil and gasoline prices this morning are moderately lower.  A rally in the dollar index (DXY00) today to a 1-week high is weighing on energy prices.  Also, weakness in stocks today is undercutting confidence in the economic outlook that is bearish for energy demand.  Losses in crude are limited on carry-over support from last Wednesday when OPEC+ cut its crude production target by a larger than expected -2.0 million bpd, fueling concerns about tighter global supplies.  

Nov nat-gas this morning is slightly higher on the prospects for increased heating demand for nat-gas due to the outlook for colder-than-normal weather in the U.S.  Forecaster Atmospheric G2 said today that below-normal temperatures are expected for the central-eastern U.S. from October 15-19.

Today's global economic news was weaker than expected and bearish for crude demand and prices.  For example, Eurozone Oct Sentix investor confidence fell -6.5 to a 2-1/4 year low of -38.3, weaker than expectations of -34.7.  Also, the China Sep Caixin services PMI fell -5.7 to 49.3, weaker than expectations of 54.4 and the steepest pace of contraction in 4 months.

Crude oil prices rallied sharply last week after OPEC+ Wednesday agreed to cut its collective output by -2.0 million bpd for November and December, a bigger cut than expectations of -1.0 million bpd.  Saudi Arabia's energy minister said the real-world impact of the crude production cuts would likely be around 1 million to 1.1 million bpd from November, given some members are already pumping well below their quotas.  

Stronger crude demand in India, the world's third-largest crude-consuming nation, is bullish for oil prices.  India's Oil Ministry reported last Friday that India's Sep oil products consumption rose +8.1% y/y to 17.2 MMT.

Comments from Nigeria's oil minister last Wednesday were bullish for crude prices when he said OPEC wants crude prices around $90 per barrel and "we have to take every step to ensure prices remain" within this range.

In a bullish factor, Vortexa reported today that the amount of crude stored on tankers that have been stationary for at least a week fell -6.3% w/w to 85.45 million bbls in the week ended October 7.

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 30 were -2.6% below the seasonal 5-year average, (2) gasoline inventories were -8.5% below the seasonal 5-year average, and (3) distillate inventories were -21.4% below the 5-year seasonal average.  U.S. crude oil production in the week ended September 30 was unchanged at 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 October 7 fell by -2 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.

• Energy in Q3 and Beyond
• Crude Prices Soar on Global Supply Fears
• Nat-Gas Prices Fall as U.S. Inventories Recover
• Crude Pushes Higher on the Outlook for Tighter Global Supplies