Crude Climbs as Weekly EIA Inventories Unexpectedly Fall

Nov WTI crude oil (CLX22) this morning is up +0.47 (+0.57%), and Nov RBOB gasoline (RBX22) is up +2.58 (+1.01%).  Nov Nymex natural gas (NGX22) is down by -0.205 (-3.57%).

Crude oil and gasoline prices this morning are moderately higher.  An unexpected decline in weekly EIA crude inventories today is pushing prices higher.  However, gains in crude are limited by a stronger dollar and expectations for the Biden administration to release more crude from the Strategic Petroleum Reserve (SPR) onto the market.

Nov nat-gas this morning tumbled to a 3-1/2 month nearest-futures low on a weak demand outlook.  The Commodity Weather Group said today that above-average temperatures are expected for the Midwest and East Coast for the rest of this month, which will reduce heating demand for nat-gas.

A bearish factor for crude is expectations that the Biden administration will release 10 million to 15 million bbls of crude from the SPR to balance markets and keep gasoline prices from climbing further.

A bearish factor for crude prices was the comment Monday from Chinese President Xi Jinping, who told the China Communist Party Congress that 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.  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.

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, since some members are already pumping well below their quotas.  

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.

Stronger crude demand in India, the world's third-largest crude-consuming nation, is bullish for oil prices.  India's Oil Ministry reported October 7 that India's Sep oil products consumption rose +8.1% y/y to 17.2 MMT.

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."

Today's weekly EIA crude inventory report was mixed.  On the bullish side, EIA crude inventories unexpectedly fell -1.73 million bbl versus expectations of a +2.0 million bbl build.  On the negative side, EIA gasoline stockpiles fell -114,000 bbl, a smaller draw than expectations of -2.0 million bbl.  Also, EIA distillate supplies unexpectedly rose +124,000 bbl versus expectations of a -2.0 million bbl draw.  In addition, crude stockpiles at Cushing, the delivery point of WTI futures, rose +583,000 bbl to a 5-month high.

Today's EIA report showed that (1) U.S. crude oil inventories as of October 14 were -1.7% below the seasonal 5-year average, (2) gasoline inventories were -7.4% below the seasonal 5-year average, and (3) distillate inventories were -22.4% below the 5-year seasonal average.  U.S. crude oil production in the week ended October 14 rose +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 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.

• Nat-Gas Declines as European Prices Slump and U.S. Temps Set to Warm
• Crude Tumbles as U.S. Set to Release Crude From SPR
• Nat-Gas Slumps on Weak European Prices and Forecasts for Warm U.S. Temps
• Crude Slightly Higher on Dollar Weakness and Strength in Stocks