Crude Rallies on Dollar Weakness and Easier China Pandemic Restrictions

Dec WTI crude oil (CLZ22) on Friday closed up by +2.49 (+2.88%), and Dec RBOB gasoline (RBZ22) closed up by +4.33 (+1.69%).  

Crude oil and gasoline prices Friday closed sharply higher.  Friday's -1.7% plunge in the dollar index to a 2-3/4 month low was bullish for energy prices.  

Crude prices also rallied Friday after China eased some pandemic restrictions, raising hopes of an energy demand recovery in China, the world's second-largest economy.  China cut the time foreign travelers into China must quarantine to five days in a hotel or government facility, followed by three days confined at home from the current policy of 10 days in quarantine.  Also, China scrapped the system that penalized airlines for bringing virus cases into China.  Ctrip.com reported that booking for flights into China doubled in the hour after the government announced an easing of restrictions for inbound travelers.

Chinese energy demand concerns continue to be an underlying bearish for crude prices after China reported 10,243 new Covid infections on Thursday, the most in over six months.  Also, China's new Politburo Standing Committee on Thursday 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.

Friday's U.S. economic news was bearish for crude prices after the University of Michigan U.S. Nov consumer sentiment index fell -5.2 to a 4-month low of 54.7, weaker than expectations of 59.5.

A bearish factor for crude prices was Friday's action by the EU Commission to cut its Eurozone 2023 GDP forecast to +0.3% from a July forecast of +1.4%, which signals reduced fuel demand.

Weakness in the crude crack spread is negative for oil prices after the crack spread Friday fell to a 2-1/2 week low.  Weakness in the crack spread discourages refiners from purchasing crude oil to refine into gasoline and distillates.

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 Friday that active U.S. oil rigs in the week ended November 11 rose by +9 rigs to a 2-1/2 year high of 622 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.
 

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