Crude Moderately Lower on Concerns About Global Energy Demand

Dec WTI crude oil (CLZ22) this morning is down -0.46 (-0.54%), and Dec RBOB gasoline (RBZ22) is up +1.70 (+0.69%).  Nov Nymex natural gas (NGX22) is up by +0.262 (+5.28%).

Crude oil and gasoline prices this morning are mixed.  Global energy demand concerns are undercutting crude prices today after manufacturing news from the U.S and Eurozone showed a contraction in manufacturing activity.  Also, Chinese energy demand concerns are weighing on energy prices as China looks to maintain its Covid Zero policies, which will weigh on economic growth and fuel demand.  Energy prices found underlying support on a weak dollar and strength in stocks, which bolsters confidence in the economic outlook that is bullish for energy demand.

Nov nat-gas this morning rebounded from a 7-month nearest-futures low and is moderately higher as a weaker dollar sparked short covering in nat-gas futures.  Nat-gas prices today initially tumbled to a 7-month low on the outlook for warmer-than-normal U.S temperatures to reduce heating demand for nat-gas.  Forecaster Atmospheric G2 said today that above-normal temperatures are expected across the eastern two-thirds of the U.S. from October 29-November 2.

Manufacturing news today was weaker than expected and bearish for crude demand and prices.  The U.S. Oct S&P Global manufacturing PMI fell -2.1 to 49.9, weaker than expectations of 51.0 and the steepest pace of contraction in 2-1/4 years.   Also, the Eurozone Oct S&P Global manufacturing PMI fell -1.8 to 46.6, weaker than expectations of 47.9 and the steepest pace of contraction in nearly 2-1/2 years.

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 -2.4% w/w to 90.95 million bbls in the week ended October 21.

In a bearish factor, Chinese President Xi Jinping said at the China Communist Party Congress last week 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.  

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.

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.

Oil prices are seeing underlying 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 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 21 rose by +2 rigs to a 2-1/2 year high of 612 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 Closes Moderately Higher on Dollar Weakness
• Crude Oil Pushes Higher on Dollar Weakness
• Crude Modestly Higher on Hopes China Will Ease Pandemic Restrictions
• Crude Gains on Hopes China Will Ease Pandemic Restrictions