Crude Retreats on Dollar Strength and Technical Selling

Mar WTI crude oil (CLH23) on Friday closed down -1.33 (-1.64%), and Mar RBOB gasoline (RBH23) closed down -2.31 (-0.88%).  

Crude oil and gasoline prices Friday gave up an early advance and turned lower.  A stronger dollar (DXY00) Friday undercut energy prices.   Also, technical selling pressured prices as long liquidation emerged Friday after crude failed to surpass Monday's 1-week high or the 100-day moving average.

Friday's U.S. economic data was mixed for energy demand and crude prices.  On the bearish side, Dec personal spending fell -0.2% m/m, the biggest decline in a year.  Conversely, Dec pending home sales unexpectedly rose +2.5% m/m, stronger than expectations of -1.0% m/m and the biggest increase in 14 months.  Also, the University of Michigan U.S Jan consumer sentiment was revised up by +0.3 to a 9-month high of 64.9.  

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.

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.      

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.

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 Friday that active U.S. oil rigs in the week ended January 27 fell by -4 rigs to 609 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 Falls on Dollar Strength and Technical Selling
• Signs of Stronger Global Energy Demand Supports Crude Prices
• Crude Gains on Signs of Stronger Global Energy Demand
• Crude Slightly Higher on Smaller EIA Inventory Build