Crude Oil Gains on Dollar Weakness and a Sharp Rally in Stocks

Dec WTI crude oil (CLZ22) this morning is up by +0.82 (+0.96%), and Dec RBOB gasoline (RBZ22) is up by +1.87 (+0.739%).  Dec Nymex natural gas (NGZ22) is up +0.245 (+4.18%).

Crude oil and gasoline prices this morning shook off early losses and are moderately higher.  Crude recovered from a 2-week low today and moved higher after the dollar index plunged to an 8-week low.  Also, a sharp rally in stocks today has boosted confidence in the economic outlook, which is supportive of energy demand.  However, crude prices today initially fell to a 2-week low on a weak Chinese energy demand outlook as new Covid infections in China continue to climb.

Dec nat-gas is sharply higher this morning after weekly EIA nat-gas inventories rose less than expected.  The EIA reported that nat-gas inventories rose +79 bcf last week, below expectations of +83 bcf.  Also, the outlook is for cold weather to move into the U.S. that would boost heating demand for nat-gas.  The Commodity Weather Group said that below-normal temperatures are expected across the lower 48 U.S. states from November 13-23.

Chinese energy demand concerns are bearish for crude prices after China reported 8,404 new Covid infections on Wednesday, the most in over six months.  Also, China's new Politburo Standing Committee today called for “more decisive” measures to curb the spread of Covid, which may lead to additional lockdowns and restrictions.  China's strict Covid Zero strategy 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 almost 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.  

Wednesday'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.
 

• Crude Oil Sharply Lower on China Concerns and Jump in EIA Crude Inventories
• Crude Oil Tumbles on China Concerns and Jump in EIA Crude Inventories
• Crude Oil Tumbles as Pandemic Lockdowns Curb Chinese Energy Demand
• Crude Oil Falls as Pandemic Lockdowns Curb Chinese Energy Demand