Crude Slumps on Dollar Strength and Global Slowdown Fears

Nov WTI crude oil (CLX22) this morning is down -1.68 (-1.88%), and Nov RBOB gasoline (RBX22) is down -1.29 (-0.49%).  Nov Nymex natural gas (NGX22) is up by +0.043 (+0.65%).

Crude oil and gasoline prices this morning are moderately lower and slid to 1-week lows.  A rally in the dollar index (DXY00) to a 1-1/2 week high today is undercutting energy prices.   Also, today's economic news that showed U.S. Sep producer prices rose more than expected may prompt the Fed to keep raising interest rates aggressively, which will slow growth and energy demand.  

Nov nat-gas this morning is moderately higher.  The outlook for colder U.S. temperatures that will boost heating demand for nat-gas is underpinning prices today.  The Commodity Weather Group said today that below-normal temperatures are seen in the eastern half of the U.S. from October 17-21.

Crude prices came under pressure today after Germany's Economy Ministry cut its German 2022 GDP forecast to 1.4% from an April estimate of 2.2% and cut its German 2023 GDP forecast to a contraction of -0.4% from an April forecast of +2.5% expansion,

Concern about energy demand in China is bearish for crude prices.  An article in China's state-sponsored People’s Daily newspaper Tuesday said China's Covid Zero policy is “sustainable,” and the country must stick to the strategy.  China's strict Covid lockdowns have hurt 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.

Strength in the crude crack spread is bullish for crude prices as the crack spread today rose to a 1-1/2 month high.  A stronger crack spread encourages refiners to purchase crude oil to refine into gasoline and distillates.

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 Monday 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.

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.Nov WTI crude oil (CLX22) this morning is down -1.68 (-1.88%), and Nov RBOB gasoline (RBX22) is down -1.29 (-0.49%).  Nov Nymex natural gas (NGX22) is up by +0.043 (+0.65%).

Crude oil and gasoline prices this morning are moderately lower and slid to 1-week lows.  A rally in the dollar index to a 1-1/2 week high today is undercutting energy prices.   Also, today's economic news that showed U.S. Sep producer prices rose more than expected may prompt the Fed to keep raising interest rates aggressively, which will slow growth and energy demand.  

Nov nat-gas this morning is moderately higher.  The outlook for colder U.S. temperatures that will boost heating demand for nat-gas is underpinning prices today.  The Commodity Weather Group said today that below-normal temperatures are seen in the eastern half of the U.S. from October 17-21.

Crude prices came under pressure today after Germany's Economy Ministry cut its German 2022 GDP forecast to 1.4% from an April estimate of 2.2% and cut its German 2023 GDP forecast to a contraction of -0.4% from an April forecast of +2.5% expansion,

Concern about energy demand in China is bearish for crude prices.  An article in China's state-sponsored People’s Daily newspaper Tuesday said China's Covid Zero policy is “sustainable,” and the country must stick to the strategy.  China's strict Covid lockdowns have hurt 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.

Strength in the crude crack spread is bullish for crude prices as the crack spread today rose to a 1-1/2 month high.  A stronger crack spread encourages refiners to purchase crude oil to refine into gasoline and distillates.

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 Monday 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.

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.

• Nat-Gas Prices Rebound on the Outlook for Colder U.S. Temps
• Crude Prices Decline on Global Slowdown Fears
• Nat-Gas Prices Undercut by a Fall in European Gas prices
• Crude Prices Fall Back on Dollar Strength