Crude Rallies on Dollar Weakness and Chinese Energy Demand Optimism

Jan WTI crude oil (CLF23) this morning is up +2.22 (+2.76%), and Jan RBOB gasoline (RBF23) is up +0.50 (+0.21%).  Jan Nymex natural gas (NGF23) is down -0.019 (-0.27%).

Crude oil and gasoline prices this morning are moderately higher, with crude climbing to a 2-week high.  A slump in the dollar index to a 3-1/2 month low today is bullish for energy prices.  Also, crude is climbing on expectations that energy demand will improve in China after the government eased Covid restrictions.  Finally, crude has support on signs OPEC+ may curb crude output after OPEC+ delegates said the group might consider deeper crude production supply cuts when they meet this Sunday.  

Jan nat-gas is moderately lower and fell to a 1-1/2 week low after weekly EIA nat-gas stockpiles fell less than expected.  The EIA reported nat-gas inventories fell -81 bcf, below expectations of an -86 bcf decline.  Losses in nat-gas prices were limited by forecasts for colder U.S. weather, which will boost heating demand for nat gas.  Forecaster Maxar Technologies said it expects below-normal temperatures across much of the U.S. from Dec 11-15.

Crude prices are moving higher this week after China eased Covid restrictions in some parts of the country, which sparked some optimism about an economic reopening.  China on Wednesday lifted lockdowns in Guangzhou's southern manufacturing hub, removed lockdown restrictions in the main urban areas of Zhengzhou, and said it would gradually lift lockdowns in Chongqing.  Also,  China's top official in charge of fighting Covid-19 said today that China's efforts to combat the virus are entering a new phase, with the omicron variant weakening and more Chinese getting vaccinated.  In addition, Beijing is now allowing some Covid patients to isolate at home.

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.

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 November fell 1.05 million bpd to a 5-month low of 28.79 million bpd.

Wednesday'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.

• Nat-Gas Falls on Expectations of Warmer December Temps
• Crude Rallies on China Hopes and Slump in EIA Crude Inventories
• Nat-Gas Posts Moderate Gains on the Outlook for Colder U.S. Temps
• Crude Prices Climb as OPEC+ Considers Deeper Production Cuts