Crude Oil Falls on Chinese Energy Demand Concerns

Dec WTI crude oil (CLZ22) on Monday closed down by -0.82 (-0.89%), and Dec RBOB gasoline (RBZ22) closed down -8.17 (-2.99%).  

Crude oil and gasoline prices Monday gave up an early advance and posted moderate losses on  Chinese energy demand concerns after new Covid infections in China jumped to a 6-month high.  Crude prices Monday initially moved higher, with crude climbing to a 2-1/4 month high after the dollar index dropped to a 1-week low.

Chinese energy demand concerns are negative for crude prices after China reported 5,436 new Covid infections on Sunday, the most in 6 months.  Chinese health officials Saturday said the country would “unswervingly” adhere to its Covid Zero strategy.  Also, weak Chinese trade data was bearish for economic growth and energy demand after China Oct exports unexpectedly fell -0.3% y/y, weaker than expectations of +4.5% y/y and the first decline in nearly 2-1/2 years.  In addition, China Oct imports unexpectedly fell -0.7% y/y, weaker than expectations of unchanged and the first decline in 2 years.

In a bearish factor, China's Zero Covid policy continues to cause lockdowns and weak energy demand in China.  Nomura reported that more than 10% of China's total gross domestic product was under some form of lockdown as of last Thursday, up from 9.5% last Monday.  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.

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 -18% w/w to 84.75 million bbls in the week ended November 4.

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.  

Last 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 last 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 Oil Gains on a Weak Dollar
• Crude Jumps on Dollar Weakness and China Reopening Hopes
• Crude Jumps on Dollar Weakness and China Reopening Hopes
• Crude Prices Fall on Dollar Strength and Energy Demand Concerns