Crude Plunges to a Yearly Low on Global Energy Demand Concerns

Jan WTI crude oil (CLF23) on Tuesday closed down -2.68 (-3.48%), and Jan RBOB gasoline (RBF23) closed down -5.28 (-2.40%).

Crude oil and gasoline prices Tuesday sold off to 11-1/2 month lows.  Crude prices slumped Tuesday on a stronger dollar and concern that recent better-than-expected U.S. economic news will prompt the Fed to keep interest rates higher for longer, which could push the economy into recession and hurt energy demand.  A selloff in stocks Tuesday has also reduced optimism about the economic outlook, which is bearish for energy demand.  

Crude prices have been on the defensive since Monday when Saudi Arabia's state-controlled Saudi Aramco cut its prices for its key Arab Light grade crude prices to Asian 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 Tuesday's decline in the crack spread to a 9-1/2 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 have support as China accelerates the easing of Covid restrictions.  Beijing today joined Shanghai, Shenzhen, Guangzhou, and other major Chinese cities in scrapping Covid testing requirements to enter most public venues, except some like restaurants, bars, and nursing homes.  Also, China reported 27,164 new Covid infections on Monday, 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.

Crude prices rose more than +20 cents/bbl above their Tuesday afternoon closing level after the API reported that U.S. crude supplies fell -6.43 million bbl last week.  The consensus is that Wednesday's weekly EIA crude inventories will fall -3.4 million bbl.

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 Extends Monday's Decline on Global Energy Demand Concerns
• Crude Sinks on Dollar Strength and Economic Concerns
• Crude Falls on Dollar Strength and Economic Concerns
• Crude Prices Retreat as EU Agrees to a Price Cap on Russian Crude