Crude Oil Falls on China Lockdowns and Dollar

Dec WTI crude oil (CLZ22) Friday closed down -1.18 (-1.32%), and Dec RBOB gasoline (RBZ22) closed down -7.86 (-2.98%).

Crude oil and gasoline prices Friday fell sharply on a higher dollar and on news of new Chinese Covid lockdowns in accordance with President Xi's Zero-Covid policy.  Fresh lockdowns were announced for various areas of China, including Wuhan and the east-coast industrial belt.  There are also new restrictions for Beijing and Shanghai.  China reported 1,321 new Covid cases on Thursday, a 2-week high.

Crude oil prices rallied earlier this week on Thursday's Q3 U.S. GDP report of +2.6% (q/q annualized), tight U.S. product inventories, and record U.S. petroleum exports.

Crude oil prices are seeing support from reports that U.S. officials are scaling back the plan for capping Russian oil prices and have increased the targeted cap price.  The U.S. is trying to use the plan to starve Russia of the oil revenue it uses to fund its invasion of Ukraine.  The group of countries indicating they would participate in the plan is reportedly limited to the G-7 countries and a few other countries.  China, India, and Turkey have indicated they would not participate, which blows a big hole in the plan.  European sanctions blocking the import into Europe by sea of Russian crude oil go into effect on December 5.

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, China's Zero Covid policy continues to cause lockdowns and weak energy demand in China.  Normura reports that 1 in 6 Chinese people are currently subject to Covid restrictions of varying force.  Crude oil demand remains weak as China's Aug crude oil processing was down -8% y/y.  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.

Wednesday'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 Friday that active U.S. oil rigs in the week ended October 28 fell by -2 rigs to 610 rigs, falling back from the 2-1/2 year high of 612 rigs posted in the week ended October 21.  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 Falls on China Lockdowns and Dollar
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• Crude Rallies on Positive U.S. GDP Report
• Crude Rallies on a Weak Dollar and Tight U.S. Fuel Supplies