Crude Prices Tumble as the Dollar Strengthens and Stocks Fall

Feb WTI crude oil (CLG23) this morning is down -2.08 (-2.63%), and Feb RBOB gasoline (RBG23) is down -5.72 (-2.42%).  Feb Nymex natural gas (NGG23) is down -0.638 (-12.47%).

Crude oil and gasoline prices this morning gave up early gains and are moderately lower.  A stronger dollar today is bearish for energy prices.  Also, weakness in stocks has undercut optimism in the economic outlook, which is negative for energy demand.

Feb nat-gas prices plunged to a 9-1/2 month low today as U.S. nat-gas production ramps up after recent disruptions caused by freezing weather.  Also, an ever-warming weather forecast that will reduce heating demand for nat-gas is weighing on prices.  Forecaster Atmospheric G2 said an El Nino-like weather pattern will lead to "surges of anomalous warmth into the central and eastern U.S." next week.  

Crude oil prices are also under pressure today as refiners along the Texas Gulf Coast restart production after being idled over the past few days because of frigid temperatures that forced them to shut production.   More than a third (36%) of refiners along the Texas Gulf Coast had shut production due to the bitter cold temperatures.

A negative factor for crude is an expected increase in crude supplies at Cushing, the delivery point of WTI futures.  AlphaBBL said its data shows that crude stockpiles at Cushing increased by +1.043 million bbl in the week ending December 23.  The EIA will release its weekly inventory data on Thursday due to Monday's holiday.

Crude oil prices have support after China said that it would reopen its borders from Covid curbs and eliminate quarantine restrictions for inbound travelers starting January 8.  However, the impact of easing Covis restrictions is limited as soaring Covid infections in China have kept people at home, reducing economic activity and travel.  In addition, air travel in China remains in a slump as a report from VariFlight shows the number of flights in China on December 22 fell to 42% of 2019 levels.

Crude oil prices have support after Russia's Deputy Prime Minister Alexander Novak was quoted by the state-run Tass news service last 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 is having a significant impact, as Bloomberg reports that total oil shipment volume from Russia in mid-December fell sharply by -54%.

TC Energy received approval to restart the Keystone pipeline and targets 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.

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 a bearish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week rose +24% w/w to 84.42 million bbls in the week ended December 23.

Last 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 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.

• Nat-Gas Prices Rise as Frigid Temps Cut U.S. Production and Boost Demand
• Crude Gains as China Reopens and Severe Cold Shutters U.S. Refineries
• Nat-Gas Prices Recover Modestly on Storm Factors
• Nat-Gas Prices Tumble as U.S. Nat-Gas Inventories Climb