Crude Modestly Higher as the Dollar Weakens

Jan WTI crude oil (CLF23) this morning is up +0.21 (+0.28%), and Jan RBOB gasoline (RBF23) is up +0.86 (+0.39%).  Jan Nymex natural gas (NGF23) is down by -0.463 (-7.91%).

Crude oil and gasoline prices this morning are slightly higher.  A weaker dollar today is bullish for energy prices.  However, gains in crude were limited by concern that a surge in Covid infections in China will further delay the reopening of its economy.  Also, today's decline in the S&P 500 to a 1-1/4 month low undercuts confidence in the economic outlook and is bearish for energy demand.

Jan nat-gas this morning extended Monday's sharp losses to an 8-week low on expectations for the current cold spell in the U.S. to moderate next week, which will reduce heating demand for nat-gas.  Forecaster Atmospheric G2 said today that abnormally mild temperatures are seen for most of the U.S. from Dec 30-Jan 3.  Also, negative carry-over from a decline in European nat-gas prices today to a 5-week low is undercutting U.S. nat-gas prices.

Comments today from Saudi Oil Minister Abdulaziz bin Salman were supportive of crude prices when he said OPEC and its allies have to remain proactive and pre-emptive given the uncertainties that face global oil markets.  His comments suggest OPEC+ would cut oil production further should crude prices face a sustained downturn.

Crude prices also have support on Monday's news from TC Energy, which 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 Monday 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.
 

• Crude Rises on Expectations for Stronger Chinese Energy Demand
• Crude Gains on Expectations for Stronger Chinese Energy Demand
• Crude Moderately Lower on Recession Fears and Partial Keystone Reopening
• Crude Drops on Recession Fears and Reduced Supply Concerns