Crude Prices Fall on Demand Concerns as Pandemic Worsens in China

Jan WTI crude oil (CLF23) this morning is down -0.52 (-0.68%), and Jan RBOB gasoline (RBF23) is up +1.21 (+0.53%).  Dec Nymex natural gas (NGZ22) is down -0.376 (-5.35%).

Crude oil and gasoline prices this morning are mixed, with crude falling to an 11-month nearest-futures low.  Energy demand concerns in China are a major bearish factor for crude prices.  New Covid infections in China continue to surge to new records, which may prompt the government to expand lockdowns and pandemic restrictions that curb economic activity, travel, and energy demand.  However, crude recovered from its worst levels, and gasoline rose, on a weaker dollar.

Dec nat-gas this morning is sharply lower on some liquidation ahead of the expiration of the NYMEX Dec nat-gas contract later today.  Nat-gas prices are also lower on the outlook for warmer U.S. temperatures that would reduce heating demand for nat-gas.  The Commodity Weather Group said above-normal temperatures are expected across the South and East from Dec 3-7.  In addition, the forecast is for warmer temperatures than were previously expected across the northern tier of the U.S. from Dec 8-12.

Chinese energy demand concerns continue to undercut crude prices.  China reported a record 38,808 new Covid infections on Sunday, which may lead to extended pandemic lockdowns in China that curb economic growth and energy demand.  Analytics firm Kpler said Chinese oil demand could average 15.11 million bpd in Q4, down -4.5% from 15.82 million bpd a year ago.

Another bearish factor for crude was the action by the Biden administration on Saturday to grant Chevron a license to resume oil production in Venezuela after U.S. sanctions halted all drilling activities there three years ago.  The sanctions were eased after Norwegian mediators announced the restart of talks between Venezuelan President Maduro and opposition political parties, a key condition for easing sanctions.

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.  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 today that the amount of crude stored on tankers that have been stationary for at least a week rose +2.2% w/w to 103.13 million bbls in the week ended November 25.

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 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 last 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 Prices Weighed Down on Chinese Energy Demand Concerns
• Crude Slightly Lower on Surging Chinese Covid Cases
• Crude Sharply Lower on EU Plans to Curb Russian Crude Oil Sales
• Crude Tumbles as EU Discusses Cap Level on Russian Crude Prices