Crude Gains on Expectations for Stronger Chinese Energy Demand

Jan WTI crude oil (CLF23) this morning is up +1.51 (+2.03%), and Jan RBOB gasoline (RBF23) is up +5.37 (+2.52%).  Jan Nymex natural gas (NGF23) is down -0.639 (-9.68%).

Crude oil and gasoline prices this morning are moderately higher.  A weaker dollar today is supportive of energy prices.  Crude oil prices are also higher on comments from China's top leaders, who said they will focus on boosting the economy in 2023.  However, gains in crude were limited after the S&P 500 dropped to a 1-1/4 month low, which undercuts confidence in the economic outlook and is bearish for energy demand.

Jan nat-gas plunged to a 1-week low today on the outlook for warmer U.S temperatures next week, which will curb heating demand for nat-gas.   Researcher Atmospheric G2 said that well above-normal temperatures are expected across the eastern two-thirds of the U.S. from Dec 29-Jan 2.

Crude oil prices rose today after top Chinese leaders, including Xi Jinping, said after the conclusion of last Friday's Central Economic Work Conference that they will focus on boosting domestic demand in 2023, which is bullish for energy demand and crude prices.  

Crude prices today also received a boost after TE Energy said that cold weather might further delay the restart of the Keystone pipeline.   Last Friday, TC Energy said it had restarted several sections of the Keystone pipeline, including the sections between Cushing, OK, and the Gulf Coast.  The pipeline shutdown, which began on Dec 8, 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 also have support after a senior administration official said last Friday that the Biden administration plans to purchase 3 million bbl of crude as part of its plan to replenish the Strategic Petroleum Reserve (SPR).

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 recently.  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 today that the amount of crude stored on tankers that have been stationary for at least a week fell -27% w/w to 65.71 million bbls in the week ended December 16, the lowest in 2-1/2 years.

Last 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 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.

• Nat-Gas Prices Sink on Forecasts for Cold U.S. Temps to Moderate
• Crude Drops on Recession Fears and Reduced Supply Concerns
• Nat-Gas Prices Jump on a Frigid U.S. Weather Forecast
• Crude Price Slip on Energy Demand Concerns and Partial Restart of Keystone Pipeline