Crude Drops on Recession Fears and Reduced Supply Concerns

Jan WTI crude oil (CLF23) this morning is down -2.22 (-2.92%), and Jan RBOB gasoline (RBF23) is down -3.18 (-1.47%).  Jan Nymex natural gas (NGF23) is down -0.360 (-5.16%).

Crude oil and gasoline prices this morning are moderately lower.  Energy prices are under pressure today on concern that the actions by central banks to keep raising interest rates to fight inflation will push the global economy into recession, decimating economic growth and energy demand.  Crude prices are also weighed down as TC Energy is reopening sections of the Keystone pipeline that were closed since last Thursday because of a leak, easing supply concerns.

Jan nat-gas prices this morning are sharply lower on expectations for warmer-than-expected U.S. temperatures, which will reduce heating demand for nat-gas.  The Commodity Weather Group today said that the eastern half of the U.S. is looking less cold than previously expected for the week beginning December 26.  Nat-gas prices are also weighed down from a slump in European nat-gas prices today to a 3-1/2 week low.

Crude prices also fell today as crude supply fears eased after TC Energy said it had restarted several sections of the Keystone pipeline, including the sections between Cushing, OK, and the Gulf Coast, which has been closed since last Thursday because of a leak.  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 this week 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 also raised rates by 50 bp.

Today's economic news was mixed for economic growth and energy demand.  On the bearish side, the U.S. Dec S&P Global manufacturing PMI unexpectedly fell -1.5 to 46.2, weaker than expectations of an increase to 47.8 and the steepest pace of contraction in 2 years.  Also, the Japan Dec Jibun Bank manufacturing PMI fell -0.2 to 48.8, the steepest pace of contraction in more than two years.  Conversely, the Eurozone Dec S&P Global manufacturing PMI rose +0.7 to 47.8, stronger than expectations of no change at 47.1.  

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.

• Nat-Gas Prices Jump on a Frigid U.S. Weather Forecast
• Crude Price Slip on Energy Demand Concerns and Partial Restart of Keystone Pipeline
• Nat-Gas Prices Sink on a Milder U.S. Weather Forecast
• Crude Gains as IEA Raises its 2023 Global Crude Demand Forecast