Crude Declines on Dollar Strength and Energy Demand Concerns

Mar WTI crude oil (CLH23) this morning is down -0.76 (-0.99%), and Mar RBOB gasoline (RBH23) is up +0.97 (+0.40%).  March Nymex natural gas (NGH23) is up +0.059 (+2.39%).

Crude oil and gasoline prices this morning are mixed,  with crude falling to a 3-week low.  A stronger dollar (DXY00) today is weighing on energy prices.   Crude prices also have negative carry-over from Wednesday, when weekly EIA crude inventories unexpectedly rose to their highest level in 19 months.  However, today's rally in the S&P 500 to a 5-1/4 month high and the Euro Stoxx 50 to a 1-year high shows confidence in the global economy and is bullish for energy demand and crude prices.

Mar nat-gas today recovered from a 1-3/4 year nearest-futures low and is moderately higher as short-covering emerged after weekly EIA nat-gas inventories fell more than expected.  The EIA reported that nat-gas supplies fell -151 bcf last week, a bigger draw than expectations of -143 bcf.  Nat-gas prices today initially fell to a new 1-3/4 year low on forecasts for above-normal temperatures next week across the eastern half of the U.S., which will reduce heating demand for nat-gas.

The action today by the ECB and BOE to raise interest rates by 50 bp each and Wednesday's action by the Fed to raise interest rates by 25 bp may lead to slower economic growth and energy demand and is bearish for energy prices.

On Wednesday, the OPEC+ Joint Ministerial Monitoring Committee recommended keeping 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.

A reduction in OPEC crude output is bullish for oil prices.  OPEC Jan crude production fell -60,000 bpd to 29.12 million bpd.  OPEC+ on December 4 decided to keep the group's crude production targets unchanged for January, in line with expectations.

Wednesday'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.

• Nat-Gas Prices Plunge as Warm Temps Seen Boosting Nat-Gas Inventories
• Crude Tumbles on a Bearish EIA Inventory Report
• Nat-Gas Prices Consolidate Above Monday's 1-3/4 Year Low
• Crude Gains on Signs of Stronger Global Energy Demand