Crude Falls on Partial Restart of Keystone Pipeline

Jan WTI crude oil (CLF23) on Thursday closed down -1.17 (-1.51%), and Jan RBOB gasoline (RBF23) closed down -7.76 (-3.46%).  

Crude oil and gasoline prices Thursday closed moderately lower.  Bearish factors included (1) the restart Thursday of a section of the Keystone pipeline, (2) a stronger dollar, and (3) interest rate hikes this week in the U.S., UK and EU that will undercut economic growth and energy demand.

Crude prices retreated Thursday after TC Energy restarted a section of the Keystone pipeline that extends from Alberta, Canada, to Patoka, Illinois.  The pipeline shutdown has reduced U.S. crude oil inventories at Cushing and Gulf ports.  The Keystone pipeline can carry more than 600,000 bpd of crude and links oil fields in Canada to Cushing, OK, and to refiners on the U.S. Gulf Coast and was closed since last Thursday after a 14,000-barrel crude oil leak.

Crude prices are also under pressure by the actions of global central banks to raise interest rates, which will slow economic growth and energy demand.  The Fed raised rates by 50 bp Wednesday, and the ECB and BOE on Thursday raised rates by 50 bp.

Thursday's weaker-than-expected U.S. and Chinese economic news points to a global economic slowdown that is negative for energy demand and crude prices.  U.S. Nov retail sales fell -0.6% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 11 months.  Also, U.S. Nov manufacturing production fell -0.6% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 5 months.  China's Nov industrial production rose +2.2% y/y, weaker than expectations of +3.5% y/y and the smallest increase in 6 months.  Also, China's Nov retail sales fell -5.9% y/y, weaker than expectations of -4.0% y/y and the biggest decline in 6 months.

OPEC+ on December 4 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.

Concern about a delayed reopening of China's economy is bearish for energy demand and crude prices.  Covid cases are spreading rapidly in China after the country’s pandemic restrictions were unexpectedly eased last week.  Any new Covid restrictions would curb energy demand and delay the reopening of China's economy.

In an underlying supportive factor for crude oil prices, Europe on December 5 embargoed nearly all seaborne oil imports from Russia.  In addition, Germany and Poland have pledged to halt pipeline oil imports from Russia of about 500,000 bpd as of year-end.

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 -3.1% w/w to 86.83 million bbls in the week ended December 9.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of December 9 were -6.5% below the seasonal 5-year average, (2) gasoline inventories were -2.5% below the seasonal 5-year average, and (3) distillate inventories were -8.1% below the 5-year seasonal average.  U.S. crude oil production in the week ended December 9 fell -0.8% w/w to 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 9 fell by -2 rigs to 625 rigs, falling back slightly from the 2-1/2 year high of 627 rigs on December 2.  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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