Crude Oil Tumbles on China Concerns and Jump in EIA Crude Inventories

Dec WTI crude oil (CLZ22) this morning is down by -2.05 (-2.31%), and Dec RBOB gasoline (RBZ22) is down -4.09 (-1.55%).  Dec Nymex natural gas (NGZ22) is down -0.418 (-6.81%).

Crude oil and gasoline prices this morning fell to 1-week lows and are moderately lower.   A stronger dollar today is undercutting energy prices.  Also, a weak Chinese energy demand outlook is weighing on crude prices as new Covid infections continue to climb.  Crude prices extended their losses this morning after weekly EIA crude inventories rose more than expected.  

Dec nat-gas this morning is sharply lower and posted a 1-week low.  Nat-gas prices are being undercut by speculation about a delayed restart of the Freeport LNG export terminal that would increase U.S. nat-gas inventories.  The Freeport LNG export terminal was knocked offline by an explosion on June 8.  Last month, the terminal said tentatively it would reopen on Nov 21.  The Freeport terminal normally accounts for about 20% of all U.S. nat-gas exports and receives about 2 bcf, or 2.5%, of the output from the lower 48 U.S. states.

Chinese energy demand concerns are weighing on crude prices after China reported 7,740 new Covid infections on Tuesday, the most in over six months.  Also, Chinese health officials on Saturday said the country would “unswervingly” adhere to its Covid Zero strategy, which has caused 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 Monday 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.  

Today's weekly EIA inventory report was mixed for energy prices.  On the negative side, EIA crude inventories rose +3.93 million bbl to a 16-month high, a larger build than expectations of +250,000 bbl.  Conversely, EIA gasoline supplies fell -900,000 bbl to an 8-year low.  Also, crude stockpiles at Cushing, the delivery point of WTI futures, fell by -923,000 bbl.

Today's EIA report showed that (1) U.S. crude oil inventories as of November 4 were -2.2% below the seasonal 5-year average, (2) gasoline inventories were -6.2% below the seasonal 5-year average, and (3) distillate inventories were -18.2% below the 5-year seasonal average.  U.S. crude oil production in the week ended November 4 rose +1.7% w/w to 12.1 million bpd, which is only -1.0 million bpd (-7.6%) 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.

• Nat-Gas Prices Sink on Possible Delay of U.S. Nat-Gas Exports
• Crude Oil Falls as Pandemic Lockdowns Curb Chinese Energy Demand
• Nat-Gas Prices Surge on Colder U.S. Forecasts
• Crude Oil Gains on a Weak Dollar