Crude Rallies on China Hopes and Slump in EIA Crude Inventories

Jan WTI crude oil (CLF23) this morning is up +2.19 (+2.80%), and Jan RBOB gasoline (RBF23) is up +7.40 (+3.23%).  Jan Nymex natural gas (NGF23) is down -0.341 (-4.71%).

Crude oil and gasoline prices this morning are moderately higher.  Hope that China will soon reopen its economy is bullish for crude.  Also, crude prices have support from Monday when OPEC+ delegates said the group might consider deeper crude production supply cuts when they meet this Sunday.  Crude maintained its gains after weekly EIA crude inventories fell far more than expected.

Jan nat-gas this morning tumbled to a 1-week low on forecasts for milder U.S. weather that would limit heating demand for nat-gas.  The Commodity Weather Group said the risks are for warmer weather in the East and Central to West U.S. from Dec 10-14, and forecaster NatGasWeaterh said "temperatures could warm above normal over much of the U.S. from Dec 8-15 as subfreezing air retreats to Canada."

Crude prices moved higher today after China eased Covid restrictions in some parts of the country, which sparked some optimism about an economic reopening.  China today lifted lockdowns in the southern manufacturing hub of Guangzhou, removed lockdown restrictions in the main urban areas of Zhengzhou, and said it would gradually lift lockdowns in Chongqing.  

Chinese energy demand concerns are bearish for crude prices.  China reported a record 38,808 new Covid infections on Sunday, which may lead to more pandemic lockdowns 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 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 +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.  

Today's weekly EIA report was mixed for energy prices.  On the bullish side, EIA crude inventories fell -12.58 million bbl, much more than expectations of -3.1 million bbl.  Also, crude supplies at Cushing, the delivery point of WTI futures, fell -415,000 bbl to a 4-month low.  Conversely, EIA gasoline stockpiles rose +2.77 million bbl, more than expectations of +2.25 million bbl, and EIA distillate supplies rose +3.55 million bbl, above expectations of +1.49 million bbl.

Today's EIA report showed that (1) U.S. crude oil inventories as of November 25 were -8.1% below the seasonal 5-year average, (2) gasoline inventories were -3.4% below the seasonal 5-year average, and (3) distillate inventories were -10.6% below the 5-year seasonal average.  U.S. crude oil production in the week ended November 25 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 Closes Moderately Higher on Speculation OPEC+ Will Cut Crude Output
• Crude Prices Climb as OPEC+ Considers Deeper Production Cuts
• Crude Prices Higher as OPEC+ Says It May Consider Deeper Production Cuts
• Crude Prices Fall on Demand Concerns as Pandemic Worsens in China