Crude Tumbles on Dollar Strength while Nat-Gas Plunges on Warm Temps

Feb WTI crude oil (CLG23) this morning is down -2.63 (-3.28%), and Feb RBOB gasoline (RBG23) is down -9.50 (-3.83%).  Feb Nymex natural gas (NGG23) is down -0.463 (-10.35%).

Crude oil this morning fell back from a 4-week high and is moderately lower.  A rally in the dollar index today to a 2-week high is weighing on energy prices.  Also, weakness in stocks is undercuting optimism in the economic outlook and energy demand.  Crude oil initially rallied to a 4-week high in overnight trade on hopes that the Covid surge in China has peaked.    

Feb nat-gas today plunged to an 11-month nearest-futures low on above-normal temperatures across the northern hemisphere, which are reducing heating demand for nat-gas in Europe and the U.S.  The National Oceanic and Atmospheric Administration (NOAA) expects above-normal temperatures for most of Europe over the next two weeks and for the U.S. through mid-January.  The warm temperatures so far this winter have caused rising European nat-gas inventories, with gas storage across Europe currently 84% full, far above the 5-year average for this time of year of 70%.  

Crude oil prices have support from hopes that global economic activity in China may begin to pick up as the pandemic begins to fade.  Eleven major Chinese cities reported a recovery in subway use in the past week, a sign that Covid infections may have peaked.

Crude oil prices have support after Russia's Deputy Prime Minister Alexander Novak said in late December that Russia might cut production by 500,000-700,000 bpd in response to Europe’s partial oil embargo on Russian oil imports.  The European embargo is having a significant impact, as Bloomberg reports that total oil shipment volume from Russia in mid-December fell sharply by -54%.

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 +11% w/w to 98.50 million bbls in the week ended December 30.

Last Thursday's EIA report showed that (1) U.S. crude oil inventories as of December 23 were -6.4% below the seasonal 5-year average, (2) gasoline inventories were -4.1% below the seasonal 5-year average, and (3) distillate inventories were -7.2% below the 5-year seasonal average.  U.S. crude oil production in the week ended December 23 fell -0.8% w/w 12.0 million bpd, which is only 1.1 million bpd (-8.4%) 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 30 fell by -1 rig to 621 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 Fall as Warm U.S. Temps Undercut Heating Demand
• Crude Gains on Dollar Weakness and Chinese Energy Demand Optimism
• Nat-Gas Prices Under Pressure on Above-Normal U.S. Temps
• Crude Falls on Covid Concerns and an Unexpected Build in EIA Crude Inventories