Crude Oil Rebounds on Signs of Improvement in Chinese Fuel Demand

Feb WTI crude oil (CLG23) this morning is up +1.05 (+1.44%), and Feb RBOB gasoline (RBG23) is up +2.45 (+1.08%).  Feb Nymex natural gas (NGG23) is down -0.420 (-10.07%).

Crude oil and gasoline this morning are moderately higher on signs of a pickup in energy demand in China.  However, crude fell back from its best levels today after the dollar index rallied to a 4-week high and after weekly EIA crude inventories rose more than expected.

Feb nat-gas prices this morning plunged to a 1-year nearest-futures low on a smaller-than-expected draw in weekly EIA nat-gas inventories.  Today's EIA report showed nat-gas inventories fell -221 bcf last week, a smaller draw than expectations of -240 bcf.  Gas prices were already on the defensive on forecasts for above-normal temperatures across most of the U.S. through the middle of this month, which will reduce heating demand for nat-gas.

Signs of stronger fuel demand in China are bullish for crude prices.  BNEF reported a congestion index of Chinese road traffic levels in 15 Chinese cities with the most vehicle registrations in the week ended January 4 jumped +32.9% versus a week earlier.

Today's U.S. economic news was supportive of crude prices.  Dec ADP employment rose +235,000, showing a stronger labor market than expectations of +150,000.  Also, weekly initial unemployment claims unexpectedly fell -19,000 to a 3-1/4 month low of 204,000, showing a stronger labor market than expectations of unchanged at 225,000.  In addition, the Nov trade deficit shrank to a 2-year low of -$61.5 billion from -$77.8 billion in Oct, a smaller deficit than expectations of -$63.0 billion and a positive factor for Q4 GDP.

Saudi Arabia's state-controlled Saudi Aramco today reduced its crude oil prices to customers, which was bearish for crude oil prices.  Saudi Aramco cut its price of Arab Light grade crude to Asian customers for delivery in Feb by -$1.45 per barrel and also cut prices for its customers in Europe and the Mediterranean region.

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 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.

Today's weekly EIA inventory report was mixed for energy prices.  On the bullish side, EIA distillate supplies fell -1.43 million bbl, a larger draw than expectations of -1.17 million bbl.  Conversely, EIA crude inventories rose +1.69 million bbl, above the consensus of +1.50 million bbl.  Also, EIA gasoline stockpiles fell -346,000 bbl, a smaller draw than expectations of -1.0 million bbl as U.S. gasoline demand shrank.  U.S. gasoline demand in the week ended December 30 fell -19.4% w/w to 7.514 million bpd, a 10-month low.

Today's EIA report showed that (1) U.S. crude oil inventories as of December 30 were -4.8% below the seasonal 5-year average, (2) gasoline inventories were -5.2% below the seasonal 5-year average, and (3) distillate inventories were -12.2% below the 5-year seasonal average.  U.S. crude oil production in the week ended December 30 rose +0.8% 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 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 Rebound as a Weaker Dollar Spurs Short Covering
• Crude Slumps on Chinese Energy Demand Concerns
• Nat-Gas Prices Plunge on Warm Temps in the Northern Hemisphere
• Crude Tumbles on Dollar Strength while Nat-Gas Plunges on Warm Temps