Crude Rallies on Dollar Weakness and Chinese Fuel Demand Optimism

Feb WTI crude oil (CLG23) this morning is up +1.26 (+1.71%), and Feb RBOB gasoline (RBG23) is up +6.70 (+2.98%).  Feb Nymex natural gas (NGG23) is up +0.329 (+8.87%).

Crude oil and gasoline prices this morning are moderately higher on a slump in the dollar index to a 7-month low and optimism that Chinese crude consumption will increase as it reopens its economy.  In addition, today's rally in the S&P 500 to a 3-week high shows confidence in the economic outlook that is supportive of energy demand.

Feb nat-gas this morning is sharply higher as a sell-off in the dollar index to a 7-month low has sparked short-covering in nat-gas futures.  Nat-gas prices last Friday sank to a 1-1/2 year low as well above-average temperatures in the U.S. are seen sharply reducing heating demand for nat-gas.  Forecaster Atmospheric G2 said today that temperatures across most of the U.S. will be above-normal through at least Jan 23.

Crude prices rallied this morning after China boosted its crude import quotas, a sign from the world's largest crude importer that it is gearing up to meet higher demand.  As of this week, China has issued a combined 132 million metric tons (MMT) of quotas for crude imports in 2023, well above the quota for 109 MMT at the same time last year.      

Saudi Arabia's state-controlled Saudi Aramco last Thursday 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 bullish factor, Vortexa reported today that the amount of crude stored on tankers that have been stationary for at least a week fell -5.9% w/w to 89.52 million bbl in the week ended January 6.

Last Thursday'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 January 6 fell by -3 rigs to 618 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 Remain Under Pressure From Warm Temps
• Crude Climbs on Dollar Weakness and Strong Stocks
• Nat-Gas Prices Sink on Bearish EIA Report and Delay in Reopening Freeport
• Crude Oil Rebounds on Signs of Improvement in Chinese Fuel Demand