Crude Prices Lower Ahead of Sunday's OPEC+ Meeting

Jan WTI crude oil (CLF23) this morning is down -0.15 (-0.18%), and Jan RBOB gasoline (RBF23) is down -4.27 (-1.79%).  Jan Nymex natural gas (NGF23) is down -0.192 (-2.77%).

Crude oil and gasoline prices this morning gave up early gains and turned lower after the dollar recovered from a 5-month low and moved higher.  Crude prices this morning initially moved higher on short-covering and position squaring ahead of Sunday's OPEC+ meeting.   Also, today's stronger-than-expected U.S. Nov payroll report showed strength in the labor market that was bullish for energy demand.  In addition, easing Covid restrictions in China may boost economic activity that supports energy demand.  

Jan nat-gas this morning dropped to a 2-week low on a shift in U.S. weather forecasts to milder weather that would curb heating demand for nat-gas.  Forecaster Atmospheric G2 said much warmer-than-normal temperatures are expected across the southern U.S. from Dec 7-12, with less heating demand than usual expected across the U.S.  Also, the Freeport LNG export terminal said today that it expects to restart its facility around year-end, a further delay from its previous indication of a mid-December restart.  The closure of the facility has been bearish for nat-gas prices since the reduction in LNG exports has put upward pressure on U.S. nat-gas inventories.

A bearish factor for crude was today's decline in the crack spread to a 2-1/4 month low.  A weaker crack spread discourages refiners from purchasing crude oil to refine into gasoline and distillates.

OPEC+ will meet this Sunday, and the consensus is for the group to keep production unchanged.  However, the market will be on guard for a production cut after several delegates said earlier this week that the group may cut production if oil prices continue to falter.  On October 5, OPEC+ 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.

Crude prices moved 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 Thursday 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.  Still, China reported a record 38,808 new Covid infections on Sunday, which indicates continued pressure on the government to combat the spreading virus.  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 more European sanctions on Russian oil beginning December 5.  Meanwhile, the markets are waiting for details on the EU and G-7 plans for a Russian oil price cap, which would prevent companies from providing shipping, insurance, and related services for Russian oil unless that oil is sold below the cap price.  The price-cap plan, if the price is low enough, should support global oil prices since it is designed to crimp Russian oil exports and thereby 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.

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 Moderately Lower as Weekly EIA Inventories Fall Less Than Expected
• Crude Rallies on Dollar Weakness and Chinese Energy Demand Optimism
• Nat-Gas Falls on Expectations of Warmer December Temps
• Crude Rallies on China Hopes and Slump in EIA Crude Inventories