Crude Sharply Lower on EU Plans to Curb Russian Crude Oil Sales

Jan WTI crude oil (CLF23) on Wednesday closed down -3.01 (-3.72%), and Jan RBOB gasoline (RBF23) closed down -5.08 (-2.08%).

Crude oil and gasoline prices Wednesday sold off sharply as the European Union (EU) discusses a cap on Russian crude oil of between $65 and $70 a barrel.  Also, Chinese energy demand concerns continue to weigh on crude prices after new Covid infections in China rose to a 7-month high.  Crude prices extended their losses after Wednesday's weekly EIA report showed a bigger-than-expected build in gasoline and distillate supplies.  

Chinese energy demand concerns continue to weigh on crude prices.  China reported 28,183 new Covid infections on Tuesday, the most in nearly seven months and just below the record 28,793 from April, which may lead to extended pandemic lockdowns in China that curb economic growth and energy demand.  Covid restrictions now cover 20% of China's economy, up from 15.6% last Monday, according to Nomura.

Soaring shipping costs are boosting crude oil costs and disrupting supplies.  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.

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.”

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.

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.  

Wednesday's weekly EIA report was mixed for energy prices.  On the bearish side, EIA gasoline stockpiles rose +3.06 million bbl, above expectations of +1.15 million bbl.  Also, EIA distillate supplies rose +1.72 million bbl, exceeding expectations of +650,000 bbl.  On the bullish side, EIA crude inventories fell -3.69 million bbl, a larger draw than expectations of -2.6 million bbl.  Also, crude stockpiles at Cushing, the delivery point of WTI futures, fell by -887,000 bbl.  

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of November 18 were -5.2% below the seasonal 5-year average, (2) gasoline inventories were -3.8% below the seasonal 5-year average, and (3) distillate inventories were -13.1% below the 5-year seasonal average.  U.S. crude oil production in the week ended November 18 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 Wednesday that active U.S. oil rigs in the week ended November 25 rose by +4 rigs to a 2-1/2 year high of 627 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 Tumbles as EU Discusses Cap Level on Russian Crude Prices
• Crude Higher on Saudi Pushback on Increased OPEC+ Output Report
• Crude Gains on Dollar Weakness and Saudi Pushback on Increased OPEC+ Output
• Crude Oil Closes Just Mildly Lower after Saudi Arabia Denies Production-Cut Report