Crude Oil Falls as Geopolitical Risks Ease and China Covid Infections Rise

Dec WTI crude oil (CLZ22) on Wednesday closed down by -1.33 (-1.53%), and Dec RBOB gasoline (RBZ22) closed down by -0.81 (-0.32%).

Crude oil and gasoline prices Wednesday posted moderate losses, with gasoline falling to a 6-week low.  Reduced geopolitical risks weighed on crude prices after NATO said it saw no indication that a missile that struck Poland was an intentional attack.  Also, Chinese energy demand concerns are bearish for crude oil prices after news that Chinese Covid infections rose to a 6-1/2 month high.  Wednesday's weekly EIA report was mixed for energy prices.

Chinese energy demand concerns remain an underlying bearish for crude prices after China reported 19,609 new Covid infections on Tuesday, the most in 6-1/2 months.  Nomura reported that more than 10% of China's total gross domestic product was under some form of lockdown as of November 3.  However, there are hopes for an easing of some restrictions.  Last Friday, 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.

Global economic data Wednesday was mostly bearish for energy demand and crude prices.  U.S. Oct manufacturing production rose +0.1% m/m, slightly weaker than expectations of +0.2% m/m.  Also, the U.S. Nov NAHB housing market index fell -5 to a 2-1/2 year low of 33, weaker than expectations of 36.  In addition, China Oct new home prices fell -0.37% m/m, the biggest decline in 6-1/2 years, and the fourteenth consecutive month prices have declined.  Finally, Japan Sep core machine orders unexpectedly fell -4.6% m/m, weaker than expectations of +0.7% m/m.  On the positive side, U.S. Oct retail sales rose +1.3% m/m, stronger than expectations of +1.0% m/m and the biggest increase in 8 months.

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 -8.2% w/w to 79.92 million bbls in the week ended November 11.

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 weekly EIA report was mixed for energy prices.  On the bearish side, EIA gasoline stockpiles rose +2.1 million bbl, more than expectations of +200,000 bbl.  Also, EIA distillate supplies unexpectedly rose +1.12 million bbl versus expectations of a -1.0 million bbl decline.  On the bullish side, EIA crude inventories fell -5.4 million bbl, a bigger decline than expectations of -1.9 million bbl.  Also, crude supplies at Cushing, the delivery point of WTI futures, fell -1.62 million bbl.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of November 11 were -4.3% below the seasonal 5-year average, (2) gasoline inventories were -5.0% below the seasonal 5-year average, and (3) distillate inventories were -15.4% below the 5-year seasonal average.  U.S. crude oil production in the week ended November 11 was unchanged w/w at 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 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.
 

• Crude Falls as Geopolitical Risks Ease and China Covid Infections Rise
• Crude Shakes Off Weak IEA Demand Forecast and Closes Higher on Missile Strikes on Poland
• Crude Recovers Early Losses as the Dollar Slumps
• Crude Sharply Lower on Chinese Energy Demand Concerns