Crude Falls on Dollar Strength and Economic Concerns

Jan WTI crude oil (CLF23) this morning is down -0.76 (-0.95%), and Jan RBOB gasoline (RBF23) is down -2.94 (-1.29%).  Jan Nymex natural gas (NGF23) is down -0.528 (-8.41%).

Crude oil and gasoline prices this morning gave up an early advance and are moderately lower.  A stronger dollar today is weighing on crude prices along with speculation that today's better-than-expected U.S. economic news on Oct factory orders and Nov ISM services will prompt the Fed to continue to tighten monetary policy, which may spark a recession that hurts energy demand.  Crude prices this morning initially moved higher after China accelerated the easing of Covid restrictions, which should boost economic activity and energy demand in China, the world's largest crude importer.  

Jan nat gas this morning plunged to a 4-week low and is sharply lower.  The outlook for above-normal U.S. temperatures that will curb heating demand for nat-gas is hammering prices.  Forecaster Atmospheric G2 said today that U.S. weather forecasts have trended "notably warmer across the eastern and central U.S. since last Friday,” with well above-normal temperatures seen east of the Rockies from Dec 10-14.

Crude prices are also under pressure today after Saudi Arabia's state-controlled Saudi Aramco cut its prices for its key Arab Light grade crude prices to customers for January delivery by $2.20 to $3.25 a barrel, a steeper cut than expectations of $2.10 a barrel.  

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

OPEC+ on Sunday decided to keep the group's crude production targets unchanged for January, right on expectations.  OPEC crude production in November fell 1.05 million bpd to a 5-month low of 28.79 million bpd.

Crude prices initially moved higher this morning after China accelerated the easing of Covid restrictions.  Shanghai, Shenzhen, Guangzhou, and other major Chinese cities scrapped Covid testing requirements to enter most public venues, except some like restaurants, bars, and nursing homes.  Also, China reported 29,171 new Covid infections on Sunday, the fewest in 2 weeks, which may prompt the relaxation of even more Covid restrictions.  

A negative factor for crude prices is the action by the EU and G-7 to agree to a $ 60-a-barrel price cap on Russian crude oil.  The cap would prevent companies from providing shipping, insurance, and related services for Russian oil unless that oil is sold below the cap price.  The $60 a barrel price cap for Russian oil is bearish for prices as Russian Urals grade crude is currently trading at $50 a barrel, meaning a price cap of $60 a barrel on Russian crude from the EU and G-7 will allow those buying under the cap access to shipping, insurance, and related services and will keep Russian crude flowing through the global market.

In a bullish factor, Vortexa reported today that the amount of crude stored on tankers that have been stationary for at least a week fell -17% w/w to 84.56 million bbls in the week ended December 2.

Last 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 Friday that active U.S. oil rigs in the week ended December 2 were unchanged at 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 Retreat as EU Agrees to a Price Cap on Russian Crude
• Crude Prices Lower Ahead of Sunday's OPEC+ Meeting
• Crude Prices Underpinned by Chinese Energy Demand Optimism
• Crude Rallies on Dollar Weakness and Chinese Energy Demand Optimism