Crude Falls on Concern about Economic Slowdown

Jan WTI crude oil (CLF23) this morning is down -0.38 (-0.53%), and Jan RBOB gasoline (RBF23) is down -1.74 (-0.84%).  Jan Nymex natural gas (NGF23) is up +0.343 (+5.99%).

Crude oil and gasoline prices this morning erased a sharp rally and dropped to fresh 1-year lows.  Oil prices fell on concern that today's unexpected increase in U.S. continuing unemployment claims to a 9-1/2 month high might indicate a weakening U.S. economy and reduced oil demand.

Crude prices this morning initially surged more than +4% after the Keystone oil pipeline was closed because of a leak.  

Jan nat-gas prices this morning are sharply higher as U.S. weather forecasts shift colder, which would increase heating demand for nat-gas.  Forecaster Atmospheric G2 said today that Western U.S. states are poised to see abnormally-low temperatures from Dec 13-18, with the cold front expanding eastward to the rest of the U.S. in the following week.  Nat-gas prices rose even after weekly EIA nat-gas inventories fell only -21 bcf last week, a smaller draw than expectations of -28 bcf.

Crude prices initially jumped this morning after TC Energy said it shut the Keystone oil pipeline system after a leak was found in the pipeline in Steele City, Nebraska.  The Keystone pipeline system can carry more than 600,000 bpd of crude from Canada to Cushing, Oklahoma, and onward to Port Arthur and Houston, Texas.  Crude prices gave up their advance on speculation the pipeline could be repaired within days and would be able to avoid a prolonged shutdown.

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.  

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.

Wednesday'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 Falls Sharply as Global Energy Demand Falters
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• Crude Extends Monday's Decline on Global Energy Demand Concerns