Crude Tumbles on a Bearish EIA Inventory Report

Mar WTI crude oil (CLH23) this morning is down -1.32 (-1.67%), and Mar RBOB gasoline (RBH23) is down -8.83 (-3.44%).  March Nymex natural gas (NGH23) is down -0.158 (-5.89%).

Crude oil and gasoline prices this morning are moderately lower.  Crude prices tumbled today after weekly EIA crude inventories unexpectedly rose to their highest level in 19 months.  A weaker dollar (DXY00) today is supportive of energy prices.

Mar nat-gas today sank to a new 1-3/4 year nearest-futures low on the outlook for warmer U.S. temperatures to curb heating demand for nat-gas.  The Commodity Weather Group said above-normal temperatures are expected across most of the Eastern half of the U.S. next week.

A decline in the crude crack spread is bearish for crude prices after the crack spread dropped to a 3-week low today.  Weakness in the crack spread discourages refiners from purchasing crude oil to refine it into gasoline and distillates.

The OPEC+ Joint Ministerial Monitoring Committee recommended today that the group keep crude production levels steady as the oil market awaits clarity on demand in China and crude supplies from Russia.  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.

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 Civil Aviation Administration reported that China's domestic air travel surged during the week-long holiday by 79.8% compared with the same period in 2022.  

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.

Today's weekly EIA inventory report was bearish for crude and refined products.  EIA crude inventories unexpectedly rose +4.14 million bbl to a 19-month high versus expectations of a -1.0 million bbl draw.  Also, EIA gasoline supplies rose +2.58 million bbl to a 9-1/2 month high, more than expectations of +2.0 million bbl.  In addition, EIA distillate stockpiles unexpectedly rose +2.32 million bbl versus expectations of a -1.5 million bbl draw.  Finally, crude supplies at Cushing, the delivery point of WTI futures, rose +2.32 million bbl to a 1-1/2 year high.

Today's EIA report showed that (1) U.S. crude oil inventories as of January 27 were +3.5% above the seasonal 5-year average, (2) gasoline inventories were -6.8% below the seasonal 5-year average, and (3) distillate inventories were -17.1% below the 5-year seasonal average.  U.S. crude oil production in the week ended January 27 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.

• Crude Gains on Dollar Weakness and Stronger Global Energy Demand
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• Crude Gains on Signs of Stronger Global Energy Demand
• Crude Oil Falls on a Stronger Dollar and Energy Demand Concerns