Crude Oil Posts Moderate Gains on Dollar Weakness and Strong Stocks

Dec WTI crude oil (CLZ22) on Tuesday closed up +0.74 (+0.87%), and Dec RBOB gasoline (RBZ22) closed up +5.83 (+2.33%).  

Crude oil and gasoline prices on Tuesday posted moderate gains, with gasoline climbing to a 2-week high.   A slump in the dollar index to a 2-1/2 week low boosted energy prices.  Also, a rally in the S&P 500 Tuesday to a 1-month high bolstered confidence in the economic outlook and was positive for energy demand.  

Tuesday's global economic news was weaker-than-expected and bearish for crude demand and prices.  The Conference Board's U.S. Oct consumer confidence index fell -5.3 to 102.5, weaker than expectations of 105.9.  Also, the U.S. Oct Richmond Fed manufacturing survey fell -10 to a 2-1/2 year low of -10, weaker than expectations of -5.  In addition, the German IFO Oct business climate index fell -0.1 to nearly 2-1/2 year low of 84.3.

Crude prices fell more than -40 cents/bbl from their Tuesday afternoon closing level after the API reported that U.S. crude supplies rose +4.52 million bbl last week.  The consensus is that Wednesday's weekly EIA crude inventories will climb +1.5 million bbl.

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 -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 Oil Gains on Dollar Weakness and Strong Stocks
• Crude Under Pressure from Global Energy Demand Concerns
• Crude Moderately Lower on Concerns About Global Energy Demand
• Crude Closes Moderately Higher on Dollar Weakness