Crude Oil Gains as Putin Says Russia May Cut its Crude Production

Jan WTI crude oil (CLF23) this morning is up +1.20 (+1.68%), and Jan RBOB gasoline (RBF23) is up +2.82 (+1.38%).  Jan Nymex natural gas (NGF23) is up +0.367 (+6.16%).

Crude oil and gasoline prices this morning are moderately higher after Russian President Putin said Russia might cut its crude production in response to the G-7 cap on the price of its crude.  However, crude oil prices are being undercut by today's stronger dollar.

Jan nat-gas this morning is sharply higher for the third day as increasingly colder U.S. weather forecasts signal stronger heating demand for nat-gas.  Forecaster Atmospheric G2 said today that below-normal temperatures are expected across much of the western and southern U.S. from Dec 14-18.

Crude prices have some support after TC Energy Thursday 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.  Expectations are for the pipeline to be repaired within days, avoiding 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.

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.
 

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