Feb WTI crude oil (CLG23) on Wednesday closed down -0.70 (-0.87%), and Feb RBOB gasoline (RBG23) closed down -2.16 (-0.85%). Â
Crude oil and gasoline prices Wednesday erased an early rally and closed moderately lower. Â Crude oil Wednesday fell back from a 6-week high, and gasoline retreated from a 2-month high, after weaker-than-expected U.S. economic news sparked energy demand concerns. Â Crude prices Wednesday initially rallied to a 6-week high after the dollar index tumbled to a 7-1/2 month low. Â Also, Wednesday's monthly outlook from the International Energy Agency (IEA) predicted that global oil demand will reach a record daily average this year with the reopening of China's economy. Â
Crude prices fell nearly -50 cents/bbl from their Wednesday afternoon closing level when the API reported that U.S. crude supplies rose +7.6 million bbl last week. Â The consensus is that Thursday's weekly EIA crude inventories will fall by -3.0 million bbl.
Crude prices garnered support Wednesday after the IEA predicted that global crude consumption this year will expand by 1.9 million bpd to reach a record average of 101.7 million bpd, with about half of the growth coming from China.
Strength in the crude crack spread is positive for oil prices after the crack spread today climbed to a 1-3/4 month high. Â The higher crack spread encourages refiners to boost their crude purchases to refine it into gasoline and distillates.
Wednesday's U.S. economic news was weaker than expected, signaling weakness in energy demand that is bearish for crude prices. Â Dec retail sales fell -1.1% m/m, weaker than expectations of -0.9% m/m and the biggest decline in a year. Â Also, Dec manufacturing production fell -1.3% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 1-3/4 years.
Crude prices have support as the removal of pandemic travel restrictions has bolstered expectations for a jump in domestic and international flights in China during the week-long Lunar New Year that begins on January 21.
China boosted its crude import quotas last Monday, a sign from the world's largest crude importer that it is gearing up to meet higher demand. Â 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. Â Â Â
In a note to clients Monday, Goldman Sachs said oil market participants are preparing for a recession that is unlikely to materialize, and oil markets are unprepared for the sequential demand growth this year as China reopens and travel continues to recover. Â As a result, Goldman Sachs predicts Brent crude will reach $105 a bbl by Q4 and average $97.50 a bbl this year. Â
Increased OPEC crude output is bearish for oil prices. Â OPEC Dec crude production rose +150,000 bpd to 29.140 million bpd. Â OPEC+ on December 4 decided to keep the group's crude production targets unchanged for January, in line with expectations. Â OPEC+ will meet again on February 1 to discuss its production targets.
Crude oil prices found 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 Monday that the amount of crude stored on tankers that have been stationary for at least a week fell -8.9% w/w to 85.39 million bbl in the week ended January 13.
Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of January 6 were +0.4% above the seasonal 5-year average, (2) gasoline inventories were -7.0% below the seasonal 5-year average, and (3) distillate inventories were -17.1% below the 5-year seasonal average. Â U.S. crude oil production in the week ended January 6 rose +0.8% w/w to 12.2 million bpd, which is only 0.9 million bpd (-6.9%) 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 13 rose by +5 rigs to 623 rigs, modestly below the 2-1/2 year high of 627 rigs posted on December 2. Â 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.
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More Crude Oil News from Barchart
- Crude Rallies on Dollar Weakness and Chinese Energy Demand Optimism
- Crude Climbs on Stronger-Than-Expected Chinese Economic News
- Crude Climbs on Stronger-Than-Expected Chinese Economic News
- Crude Rallies on a Weak Dollar and Chinese Energy Demand Optimism
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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