Crude Tumbles as the Dollar Rallies and Stocks Decline

Feb WTI crude oil (CLG23) on Tuesday closed down -3.33 (-4.15%), and Feb RBOB gasoline (RBG23) closed down -11.71 (-4.73%).  

Crude oil Tuesday fell back from a 4-week high and closed sharply lower after posting a new 1-1/2 week low.  A rally in the dollar index Tuesday to a 2-week high weighed on energy prices.  Crude prices extended their losses Tuesday when stocks retreated, which curbed optimism about 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.    

Increased OPEC crude output is bearish for oil prices.  OPEC Dec crude production rose +150,000 bpd to 29.140 million bpd.  OPEC+ on December 4 decided to keep the group's crude production targets unchanged for January, in line with expectations.  OPEC+ will meet again on February 1 to discuss its production targets.

Crude oil prices have support from hopes that global economic activity in China may begin to pick up as the pandemic passes its peak.  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%.

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.

• Crude Tumbles on Dollar Strength while Nat-Gas Plunges on Warm Temps
• Crude Jumps as the Dollar Falls and Chinese Energy Demand Optimism Rises
• Crude Gains on Dollar Weakness and Chinese Energy Demand Optimism
• Crude Declines on China Covid Concerns and Rising EIA Crude Inventories