Crude Gains on a Bigger-Than-Expected Drop in EIA Crude Inventories

Feb WTI crude oil (CLG23) this morning is up +1.81 (+2.37%), and Feb RBOB gasoline (RBG23) is up +2.92 (+1.31%).  Jan Nymex natural gas (NGF23) is up by +0.162 (+3.04%).

Crude oil and gasoline prices this morning are moderately higher and posted 2-week highs.  Crude has carry-over support from Tuesday on concern OPEC+ might cut its output further when Saudi Oil Minister Abdulaziz bin Salman said OPEC+will remain proactive and pre-emptive in managing the global oil market.  Crude prices extended their gains this morning after weekly EIA crude inventories fell more than expected.

Jan nat-gas this morning is sharply higher on the outlook for increased heating demand for nat-gas as forecasts are calling for well below-normal temperatures across most of the U.S. this week.  The Commodity Weather Group said today that temperatures in the Midwest and East are now seen even lower than previously expected over the next five days.

Comments Tuesday 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 Tuesday's news from TC Energy, which said that cold weather will delay the restart of the Keystone pipeline until at least Dec 28 or 29.  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 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.

Today's weekly EIA report was mixed for energy prices.  On the positive side, EIA crude inventories fell -5.9 million bbl, a bigger decline than expectations of -2.5 million bbl.  Also, EIA distillate supplies unexpectedly fell -242,000 bbl versus expectations of a +1.5 million bbl build.  On the bearish side, EIA gasoline stockpiles rose +2.5 million bbl to a 5-month high, exceeding expectations of +2.0 million bbl.  Also, crude supplies at Cushing, the delivery point of WTI futures, rose +853,000 bbl.

Today's EIA report showed that (1) U.S. crude oil inventories as of December 16 were -7.2% below the seasonal 5-year average, (2) gasoline inventories were -1.9% below the seasonal 5-year average, and (3) distillate inventories were -7.6% below the 5-year seasonal average.  U.S. crude oil production in the week ended December 16 was unchanged 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 Settles Moderately Higher as the Dollar Weakens
• Crude Modestly Higher as the Dollar Weakens
• Crude Rises on Expectations for Stronger Chinese Energy Demand
• Crude Gains on Expectations for Stronger Chinese Energy Demand