Crude Slightly Lower on Surging Chinese Covid Cases

Jan WTI crude oil (CLF23) this morning is down -0.09 (-0.12%), and Jan RBOB gasoline (RBF23) is down -4.25 (-1.78%).  Dec Nymex natural gas (NGZ22) is down -0.064 (-0.88%).

Crude oil and gasoline prices this morning are slightly lower.  Chinese energy demand concerns are weighing on crude prices after new Covid infections in China surged to a record, which may prompt the government to expand lockdowns and pandemic restrictions that curb economic activity, travel, and energy demand.  However, a weaker dollar today has limited losses in crude prices.

Dec nat-gas this morning is moderately lower.  A warmer U.S. weather forecast that will curb heating demand for nat-gas is weighing on prices today after the Commodity Weather Group said that the Northeast is expected to see above-normal temperatures from Nov 30-Dec 4.

Chinese energy demand concerns continue to undercut crude prices.  China reported a record 31,987 new Covid infections on Thursday, 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.

Today's action by China to boost stimulus may revive economic growth and energy demand in China, the world's second-biggest economy after the PBOC cut the reserve requirement ratio for most banks by 25 bp to 11.00% from 11.25%,

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 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 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.
 

• Nat-Gas Surges on Forecasts for Colder U.S. Temps
• Crude Tumbles as EU Discusses Cap Level on Russian Crude Prices
• Nat-Gas Gains on the Outlook for Colder U.S. Temps
• Crude Gains on Dollar Weakness and Saudi Pushback on Increased OPEC+ Output