Crude Prices Higher as Russia Threatens Production Cut

Feb WTI crude oil (CLG23) on Friday closed up +2.07 (+2.67%), and Feb RBOB gasoline (RBG23) is up +13.18 (+5.83%).

Crude oil prices on Friday rallied sharply after Russia threatened a production cut.  Meanwhile, gasoline and petroleum products saw support from a freeze in Texas that led to the closure of more than one-third of Texas Gulf Coast oil-refining capacity.

Crude oil prices rallied after Russia's Deputy Prime Minister Alexander Novak was quoted by the state-run Tass news service Friday as saying that Russia may cut production by 500,000-700,000 bpd in response to Europe’s partial oil embargo on Russian oil imports.  Russia has threatened to retaliate for the European oil embargo and price cap and may be trying to talk oil prices higher.  However, the embargo seems to be having a significant impact, as Bloomberg reports that total oil shipment volume from Russia in mid-December fell sharply by -54%.

Crude oil prices are being undercut by the threat to economic growth and oil demand as the Covid pandemic explodes in China after its Covid-zero policy was recently scrapped due to public protests.  Bloomberg reported Friday that the minutes from an internal meeting of China’s National Health Commission held on Wednesday showed that nearly 37 million people may have contracted Covid on a single day earlier this week and that a mind-bending 18% of the population (248 million people) likely contracted Covid just in the first 20 days of December.  The commission estimates that more than half of the residents in the Sichuan province and the capital of Beijing may have been infected.  Covid cases are reportedly deluging China’s hospitals and crematoriums.  According to Bloomberg analysis of transit data, Shanghai subway usage in the latest week was down 51% compared to the same period in 2019.  

TC Energy received approval to restart the Keystone pipeline and is targeting the full return of the pipeline capacity by December 28 or 29.  TC Energy has already restarted several sections of the Keystone pipeline, including the sections between Cushing 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 normally carries 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.

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 Friday that active U.S. oil rigs in the week ended December 23 rose by +2 rigs to 622 rigs, modestly below the 2-1/2 year high of 627 rigs posted 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 Prices Higher as Russia Threatens Production Cut
• Crude Prices Fall on a Stronger Dollar and Chinese Energy Demand Concerns
• Crude Falls on Dollar Strength and Chinese Energy Demand Concerns
• Crude Climbs as Weekly EIA Crude Inventories Fall