Crude Gains on Dollar Weakness and Stronger Global Energy Demand

Mar WTI crude oil (CLH23) on Tuesday closed up +0.97 (+1.25%), and Mar RBOB gasoline (RBH23) closed up +6.10 (+2.43%).  

Crude oil and gasoline prices Tuesday recovered from early losses and closed moderately higher.  Crude rebounded from a 3-week low Tuesday after the dollar (DXY00) weakened.  Also, signs of more robust global energy demand were bullish for crude prices after the IMF boosted its 2023 global GDP forecast on Tuesday.  However, a bearish factor for crude is concern that the actions by global central banks this week to raise interest rates will slow economic growth and energy demand.

Crude prices garnered support Tuesday after the International Monetary Fund (IMF) revised its 2023 GDP estimate up by +0.2 to 2.9% from a 2.7% estimate in October, citing resilient U.S. consumer spending and China's reopening.

An unexpected expansion in the Eurozone economy last quarter shows stronger energy demand and is bullish for crude prices.  Tuesday's news showed Eurozone Q4 GDP rose +0.1% q/q and +1.9%y/y, stronger than expectations of -0.1% q/q and +1.7% y/y.

A bearish factor for crude Tuesday was a report from AlphaBBL that said crude inventories at Cushing, the delivery point of WTI futures, would climb by +2.1 million bbl in the week ended Jan 27.

Signs of strength in Chinese fuel demand support crude prices after Sinopec reported that retail gasoline sales at gas stations affiliated with Sinopec in China rose +20% over the Lunar New Year break compared to the same period last year.  Also, China's Ministry of Culture and Tourism reported that more than 300 million trips were made during the week-long Lunar New Year holiday, nearly 90% of pre-pandemic levels.

Delegates from OPEC+ said the group would maintain its crude production targets at current levels when they meet on February 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 -16% w/w to 75.20 million bbl in the week ended January 27.

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.

The consensus is that Wednesday's weekly EIA crude inventories will fall by -1.0 million bbl.

Last 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 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.

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