Crude Jumps on Dollar Weakness and China Reopening Hopes

Dec WTI crude oil (CLZ22) Friday closed sharply higher by +4.44 (+5.04%), and Dec RBOB gasoline (RBZ22) closed +4.09 (+1.52%).

Crude oil and gasoline prices rallied sharply on a -1.7% sell-off in the dollar index (DXY00) and continued reports that China may be close to ending its Covid Zero policy.  Bloomberg reported Friday that China's State Council is working on plans to end Covid flight suspensions and scrap a system that penalizes airlines for bringing Covid cases into the country.  

Friday's U.S. Oct payroll report was better than expected and supported the prospects for energy demand.  U.S. Oct nonfarm payrolls rose +261,000, stronger than expectations of +193,000.  Also, Sep nonfarm payrolls were revised upward to +315,000 from the previously reported +263,000.

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 +2.7% w/w to 96.79 million bbls in the week ended October 28.

In a bearish factor, China's Zero Covid policy continues to cause lockdowns and weak energy demand in China.  China reported 2,675 new Covid infections on Sunday, the most in 2-1/2 months.  Nomura reported last week 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 October rose +30,000 bpd to a 2-1/2 year high of 29.98 million bpd.  

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of October 28 were -2.6% below the seasonal 5-year average, (2) gasoline inventories were -6.2% below the seasonal 5-year average, and (3) distillate inventories were -18.6% below the 5-year seasonal average.  U.S. crude oil production in the week ended October 28 fell -0.8% w/w to 11.9 million bpd, which is only -1.2 million bpd (-9.2%) 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 November 4 rose by +3 rigs to a 2-1/2 year high of 613 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 Jumps on Dollar Weakness and China Reopening Hopes
• Crude Prices Fall on Dollar Strength and Energy Demand Concerns
• Crude Prices Decline on Dollar Strength and Energy Demand Concerns
• Crude Rallies on Chinese Energy Demand Optimism and a Drop in EIA Inventories