Crude Under Pressure from Fears of Shrinking Global Energy Demand

Jan WTI crude oil (CLF23) this morning is down -1.74 (-2.34%), and Jan RBOB gasoline (RBF23) is down -4.98 (-2.32%).  Jan Nymex natural gas (NGF23) is down -0.018 (-0.33%).

Crude oil and gasoline prices this morning extended this week's losses down to 11-1/2 month lows.  Weaker-than-expected Chinese trade news today signals a slowing global economy that is bearish for energy demand.  In addition, crude prices extended their losses after weekly EIA gasoline and distillate supplies rose more than expected, a sign of weaker U.S. fuel demand.  

Jan nat-gas this morning is moderately lower and is just above Tuesday's 6-week nearest-futures low.  Nat-gas prices are lower on the outlook for above-normal U.S. temperatures that would reduce heating demand for nat-gas.  The Commodity Weather Group said mild temperatures are expected in the Midwest and East from Dec 11-15.

Today's Chinese trade news was bearish for energy demand and crude prices.  Chinese Nov exports fell -8.7% y/y, weaker than expectations of -3.9% y/y and the biggest decline in 2-3/4 years.  Also, Nov imports fell -10.6% y/y, weaker than expectations of -7.1% y/y and the biggest decline in 2-1/2 years.

Crude prices were undercut 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 today'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 on Tuesday joined Shanghai, Shenzhen, Guangzhou, and other major Chinese cities in scrapping Covid testing requirements to enter most public venues, except locations such as 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 in early December 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 below $60 per barrel, which means that the 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.

Today's weekly EIA report was mixed for energy prices.  On the bearish side, EIA gasoline stockpiles rose +5.32 million bbl, more than double expectations of a +2.47 million bbl increase.  Also, EIA distillate supplies rose +6.16 million bbl to a 10-month high, well above expectations of +2.35 million bbl.  In addition, U.S. crude production in the week ended December 2 rose +0.8% w/w to 12.2 million bpd, a 2-1/2 year high.  On the positive side, EIA crude inventories fell -5.19 million bbl to a 7-1/2 month low, a bigger decline than expectations of -3.42 million bbl.  Also, crude supplies at Cushing, the delivery point of WTI futures, fell by -373,000 bbl.

Today's EIA report showed that (1) U.S. crude oil inventories as of December 2 were -8.4% below the seasonal 5-year average, (2) gasoline inventories were -2.7% below the seasonal 5-year average, and (3) distillate inventories were -7.8% below the 5-year seasonal average.  U.S. crude oil production in the week ended December 2 rose +0.8% w/w to a 2-1/2 year high of 12.2 million bpd, which is only 0.9 million bpd (-6.9%) 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 Plunges to a Yearly Low on Global Energy Demand Concerns
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