Crude Rallies on Dollar Weakness and Tight U.S. Fuel Supplies

Dec WTI crude oil (CLZ22) this morning is up +2.58 (+3.02%), and Dec RBOB gasoline (RBZ22) is up +4.62 (+1.81%).  Dec Nymex natural gas (NGZ22) is down by -0.074 (-1.20%).

Crude oil and gasoline prices this morning are sharply higher, with crude posting a 1-1/2 week high and gasoline climbing to a 2-week high.  A decline in the dollar index today to a 5-week low is bullish for energy prices.  Also, tight U.S. gasoline and diesel supplies are supportive of crude.  In addition, a rally in the S&P 500 today to a 5-week high bolsters confidence in the economic outlook and is positive for energy demand.  

Dec nat-gas prices this morning are moderately lower on expectations for warm U.S. temperatures to reduce heating demand for nat-gas.  The Commodity Weather Group today said above-normal temperatures are expected for the Eastern U.S. from October 31 to November 9.  

Comments from Goldman Sachs were bullish for fuel prices after Goldman said underinvestment in U.S. fuel-making capacity, exacerbated by refinery closures and disruptions, is leading to a shortage of refined products, especially diesel, where stocks are at "unprecedentedly low levels."  Also, data today from the EIA shows gasoline stockpiles on the U.S. East Coast have fallen to their lowest seasonal level since 2007.

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."

Today's weekly EIA report was mostly bearish for crude prices.  EIA crude inventories rose +2.59 million bbl to a 15-month high, above expectations of a +1.5 million bbl build.  Also, EIA distillate stockpiles unexpectedly rose +170,000 bbl versus expectations of a -1.0 million bbl draw.  Crude oil supplies at Cushing, the delivery point of WTI futures, rose +667,000 bbl to a 5-1/2 month high.

Today's EIA report showed that (1) U.S. crude oil inventories as of October 21 were -1.3% below the seasonal 5-year average, (2) gasoline inventories were -6.7% below the seasonal 5-year average, and (3) distillate inventories were -20.2% below the 5-year seasonal average.  U.S. crude oil production in the week ended October 21 was unchanged at 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.
 

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