Crude Sinks on Dollar Strength and Economic Concerns

Jan WTI crude oil (CLF23) on Monday closed down -3.05 (-3.81%), and Jan RBOB gasoline (RBF23) closed down -7.85 (-3.33%).  

Crude oil and gasoline prices Monday gave up an early advance and sold off sharply.  A stronger dollar Monday weighed on crude prices along with speculation that Monday'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 Sunday night 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.  

Crude prices also retreated Monday 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 Monday'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, in line with 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 during Sunday night trading 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.  

In a negative factor for crude oil prices, the EU and G-7 agreed 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.  However, Russian Urals grade crude oil is currently trading at around $50 per barrel, which means that the $60 cap will have no impact on curbing Russian oil exports.  

In a bullish factor, Vortexa reported Monday 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 Falls on Dollar Strength and Economic Concerns
• 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