Crude Oil Closes Just Mildly Lower after Saudi Arabia Denies Production-Cut Report

Dec WTI crude oil (CLZ22) on Monday closed down -0.35 (-0.44%), and Dec RBOB gasoline (RBZ22) closed +1.63 (+0.67%).

Dec WTI crude oil prices early Monday plunged by as much as -6%, adding to last week's overall plunge of -10.0%, but then rebounded to close the day just mildly lower.  Crude oil prices plunged early Monday on a Wall Street Journal report that Saudi Arabia and OPEC countries are discussing a +500,000 bpd production hike ahead of the EU's embargo of Russian oil.

However, oil prices then recovered after Saudi Arabia denied the report.  Saudi Arabia said that October's 2 million bpd OPEC+ production cut will continue through the end of 2023 and that members stand ready to cut production if necessary to balance supply and demand.

Crude oil prices were also undercut Monday by the Chinese Covid spike and concern about fresh Chinese lockdowns that would damage Chinese oil demand.  China reported that its first Covid death in almost six months occurred on Saturday, and two more deaths were reported on Sunday.  China reported 23,238 new Covid infections on Saturday, down slightly from Friday.

Oil prices are seeing support ahead of a partial ban on Russian oil beginning December 5.  Europe is planning to ban the import of Russian seaborne oil beginning December 5.  Meanwhile, the markets are waiting for details on the G-7's plan for a Russian oil price cap, which are expected to emerge this week.  The price cap seeks to curb Russian oil sales by banning G-7 companies from providing shipping and related services unless that oil is sold below the cap price.  The cap is due to come into force for new bookings after December 5, although there will be a grace period until January 19 for ships to unload cargoes that were loaded before the cap went into effect.  The price cap embargo should be supportive of global oil prices since it is likely to crimp Russian oil exports and reduce the supply of world oil.

In a bearish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week rose +12% w/w to 94.71 million bbls in the week ended November 18.

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 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 18 rose by +1 rig to a 2-1/2 year high of 623 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 Plunges on Report OPEC is Considering Supply Increase to Offset Russian Embargo
• Crude Oil Continues Lower on Demand Worries
• Crude Oil Continues Lower on Demand Worries
• Crude Sharply Lower on Dollar Strength and Rising China Covid Infections