Signs of Stronger Global Energy Demand Supports Crude Prices

Mar WTI crude oil (CLH23) on Thursday closed up +0.86 (+1.07%), and Mar RBOB gasoline (RBH23) closed up +1.88 (+0.72%).  

Crude oil and gasoline prices Thursday posted moderate gains.  Better-than-expected U.S. economic news Thursday shows strength in the U.S. economy that is bullish for energy demand and crude prices.  Also, signs of strength in Chinese travel and consumer spending during the week-long Lunar New Year holiday support gains in crude.  However, limiting the upside in crude Thursday was a stronger dollar.

Increased travel and consumer spending in China during the week-long Lunar New Year holiday is bullish for crude prices.  The holiday period saw tourism rebound in Hong Kong and Macau, with 40,000 mainland visitors arriving in Macau on the second day of the holiday, the most since the start of the pandemic.

Thursday's U.S. economic news was better than expected and is positive for energy demand and crude prices.   U.S. Q4 GDP rose +2.9% (q/q annualized), stronger than expectations of +2.6%.  Also, weekly initial unemployment claims unexpectedly fell -6,000 to a 9-month low of 186,000, showing a stronger labor market than expectations of an increase to 205,000.  In addition, Dec new home sales unexpectedly rose +2.3% m/m to 616,000, stronger than expectations of a decline to 612,000.  Finally, Dec durable goods orders rose +5.6% m/m, stronger than expectations of +2.5% m/m and the biggest increase in nearly 2-1/2 years.

Delegates from OPEC+ said the group would maintain its crude production targets at current levels when they meet on Feb 1, as they await clarity on the recovery in consumption in China and the impact of sanctions on Russian crude supplies.  Goldman Sachs predicts that OPEC+ will only start to reverse its supply cuts, currently about 2 million bpd, in the second half of this year when accelerating demand will tighten the market.

China boosted its crude import quotas earlier this month, a sign from the world's largest crude importer that it is gearing up to meet higher demand.  As of last 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.      

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 -1.2% w/w to 86.77 million bbl in the week ended January 20.

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.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of January 20 were +2.5% above the seasonal 5-year average, (2) gasoline inventories were -7.7% below the seasonal 5-year average, and (3) distillate inventories were -19.6% below the 5-year seasonal average.  U.S. crude oil production in the week ended January 20 was unchanged w/w at 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 20 fell by -10 rigs to 613 rigs, 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.

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