Crude Moderately Lower on Recession Fears and Partial Keystone Reopening

Jan WTI crude oil (CLF23) on Friday closed down -1.82 (-2.39%), and Jan RBOB gasoline (RBF23) closed down -3.45 (-1.59%).

Crude oil and gasoline prices Friday posted moderate losses.  Energy prices were under pressure Friday on concern that the actions by central banks to keep raising interest rates to fight inflation will push the global economy into recession, undercutting economic growth and energy demand.  Supply concerns also eased Friday and undercut crude prices after TC Energy reopened sections of the Keystone pipeline that were closed since last Thursday because of a leak.

Crude prices Friday rebounded from their worst levels after a senior administration official said the Biden administration plans to purchase 3 million bbl of crude as part of its plan to replenish the Strategic Petroleum Reserve (SPR).

Crude prices fell Friday 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 put downward pressure on 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 from this week's central bank interest rate hikes, which will slow economic growth and energy demand.  The Fed raised rates by +50 bp Wednesday, and the ECB and BOE also raised rates by 50 bp on Thursday.

Friday's economic news was mostly bearish 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 Friday that active U.S. oil rigs in the week ended December 16 fell by -5 rigs to 620 rigs, modestly below 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.
 

• Crude Drops on Recession Fears and Reduced Supply Concerns
• Crude Falls on Partial Restart of Keystone Pipeline
• Crude Price Slip on Energy Demand Concerns and Partial Restart of Keystone Pipeline
• Crude Sharply Higher as IEA Hikes its 2023 Global Crude Demand Forecast