Crude Gains on Dollar Weakness and Saudi Pushback on Increased OPEC+ Output

Jan WTI crude oil (CLF23) this morning is up +1.29 (+1.61%), and Jan RBOB gasoline (RBF23) is up +6.78 (+2.87%).  Dec Nymex natural gas (NGZ22) is up +0.115 (+1.70%).

Crude oil and gasoline prices this morning are moderately higher.  A weaker dollar today is underpinning energy prices.  Crude prices also found support today after Saudi Arabia pushed back on talk of higher OPEC+ crude production.  The upside in crude was limited on Chinese energy demand concerns after China reported new Covid infections rose to a 6-3/4 month high, which may lead to extended pandemic lockdowns in China that curb economic growth and energy demand.

Dec nat-gas prices this morning are moderately higher and climbed to a 2-week high.  Cold U.S. temperatures that boost heating demand for nat-gas are bullish for prices as the Commodity Weather Group said below-normal temperatures are expected across most of the U.S. for the first week of December.  Also, a +3% jump in European nat-gas prices provided carry-over support to U.S. prices after Russian gas exporter Gazprom PJSC said it might curb nat-gas shipments through Ukraine next week.  The Ukraine pipeline is the last remaining route for Russian gas to western Europe that is still operating.

Crude prices have support after Saudi Arabia pushed back on talk of higher OPEC+ crude production when Saudi Arabia Energy Minister Prince Abdulaziz bin Salman said late Monday that “the current cut of 2 million bpd by OPEC+ will continue until the end of 2023.”

Soaring shipping costs are also boosting the price of crude.  Freight rates surged to $100,000 per day on Monday to ship crude as sanctions on Russian oil are forcing ships to take longer routes, which keeps ships at sea longer and reduces the pool of available vessels to deliver crude worldwide.

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 support global oil prices since it is likely to crimp Russian oil exports and reduce the supply of world oil.

Crude oil prices were undercut today by the Chinese Covid spike and concern about fresh Chinese lockdowns that would damage Chinese oil demand.  China reported 27,307 new Covid infections on Monday, the most in more than 6-3/4 months and just below the record 28,793 from April.  Covid control restrictions now cover 20% of China's economy, up from 15.6% last Monday, according to Nomura.

Weakness in the crude crack spread is bearish for prices after the crack spread fell to a 1-month low today.  A weaker crack spread discourages refiners from purchasing crude to refine it into gasoline and distillates.

Today's report from the Organization for Economic Co-operation and Development (OECD) is bearish for energy demand and crude prices.  The OECD predicts global economic growth will slow to 2.2% in 2023 from 3.1% in 2022.

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.

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