Crude Slightly Lower on Chinese Energy Demand Concerns

Nov WTI crude oil (CLX22) on Monday closed down -0.15 (-0.18%), and Nov RBOB gasoline (RBX22) closed down -3.78 (-1.44%).  

Crude oil and gasoline prices Monday closed slightly lower.  Chinese energy demand concerns weighed on crude prices Monday after Chinese President Xi Jinping said China would maintain its Covid Zero policy.  Losses in crude Monday were limited after the dollar index (DXY00) fell to a 1-week low and after stocks rallied sharply, which shows confidence in the economic outlook that is bullish for energy demand.

Strength in the crude crack spread is bullish for oil prices.  The crack spread Monday rose to a 1-3/4 month high, encouraging refiners to boost their crude purchases to refine the crude into gasoline and distillates.

Weakness in Chinese energy demand is bearish for crude prices.  Air travel in China during the Golden Week holiday in the first week of October was down -42% from a year earlier, and road trips by Chinese tourists during the week-long holiday were down about -30% from a year ago.  Transportation accounts for about half of oil consumption in China.

A bearish factor for crude prices Monday were the comments from Chinese President Xi Jinping, who spoke before the China Communist Party congress and said China's strict Covid Zero policy would be maintained.  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.

OPEC+ on October 5 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 Oct 7 that India's Sep oil products consumption rose +8.1% y/y to 17.2 MMT.

Comments from Nigeria's oil minister October 5 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 bearish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week rose +4.5% w/w to 90.16 million bbls in the week ended October 14.

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 Thursday's EIA report showed that (1) U.S. crude oil inventories as of October 7 were -0.7% below the seasonal 5-year average, (2) gasoline inventories were -8.0% below the seasonal 5-year average, and (3) distillate inventories were -23.8% below the 5-year seasonal average.  U.S. crude oil production in the week ended October 7 fell -0.8% w/w to 11.9 million bpd, which is only -1.2 million bpd (-9.2%) 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 14 jumped by +8 rigs to a 2-1/2 year high of 610 rigs.  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 Slightly Higher on Dollar Weakness and Strength in Stocks
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