Crude Falls on Dollar Strength and Chinese Energy Demand Concerns

Feb WTI crude oil (CLG23) this morning is down -0.31 (-0.40%), and Feb RBOB gasoline (RBG23) is down -0.28 (-0.12%).  Jan Nymex natural gas (NGF23) is down by -0.110 (-2.06%).

Crude oil and gasoline prices this morning fell back from 2-week highs and are slightly lower.  Crude oil prices are lower on a stronger dollar and concern that Chinese energy demand will be undercut as Covid infections surge throughout the country.  Crude prices today initially moved higher on carry-over support from Wednesday's EIA report, which showed that crude oil inventories fell more than expected.

Jan nat-gas this morning tumbled to a 2-month nearest-futures low after weekly EIA nat-gas inventories fell -87 bcf, less than expectations of -92 bcf.  Nat-gas prices are also under pressure from the outlook for milder-than-usual temperatures in the U.S. next week.  The Commodity Weather Group said above-normal temperatures are expected across the U.S. from Dec 29-Jan 2.

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.  Hospitals in China’s larger cities are full, and city streets are empty, with schools and many businesses closed as the pandemic spreads.  According to Bloomberg analysis of transit data, Shanghai subway usage in the latest week was down 51% compared to the same period in 2019.  

A negative factor for crude prices is increased crude oil exports from Libya, with Libyan Dec crude exports expected to increase to 32.02 million bbl or 1.03 million bpd from 29.58 million bbl or 986,000 bpd in Nov.

Crude prices 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 December 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.

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.

Wednesday'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 Climbs as Weekly EIA Crude Inventories Fall
• Crude Gains on a Bigger-Than-Expected Drop in EIA Crude Inventories
• Crude Settles Moderately Higher as the Dollar Weakens
• Crude Modestly Higher as the Dollar Weakens