Crude Slides on Concern About Chinese Energy Demand

Mar WTI crude oil (CLH23) this morning is down -0.61 (-0.84%), and Mar RBOB gasoline (RBH23) is down -3.24 (-1.40%).  March Nymex natural gas (NGH23) is down -0.005 (-0.21%).

Crude oil and gasoline prices this morning erased early gains and are moderately lower, with crude falling to a 1-3/4 month low and gasoline dropping to a 4-week low.  A stronger dollar is weighing on energy prices after the dollar index today climbed to a 3-1/2 week high.  Crude is also under pressure on signs of an uneven recovery in China, dampening the country's energy demand.  Losses in crude were limited after Saudi Arabia unexpectedly increased its crude prices for Asian customers in March.

Mar nat-gas (NGH23) this morning is slightly lower but remains above last Friday's 2-year low.   Nat-gas prices are lower on expectations for warmer than average U.S. temperatures to curb heating demand for nat-gas.  The Commodity Weather Group said that above-normal temperatures are seen keeping a lid on heating demand across most of the eastern half of the U.S. over the next two weeks.

An uneven recovery in China's economy is negative for crude prices.  Although a surge in consumer spending last month during the Lunar New Year holiday spurred optimism about China's rebound, signs of weakness among manufacturers and sales of cars and homes signal the recovery isn't yet on a sure footing.

The crude crack spread today dropped to a 7-week low and is bearish for crude prices.  Weakness in the crack spread discourages refiners from purchasing crude oil to refine it into gasoline and distillates.

A supportive factor for crude was today's unexpected action by state-controlled Saudi Aramco to increase the price of its Arab Light grade crude shipped to Asian customers in March by 20 cents a barrel versus an expected cut of 20 cents.  That was the first price increase for that crude grade since September.  

Last 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.  OPEC Jan crude production fell -60,000 bpd to 29.12 million bpd.

In a bearish factor, Vortexa reported today that the amount of crude stored on tankers that have been stationary for at least a week rose +3.5% w/w to 76.69 million bbl in the week ended February 3.

Last 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 February 3 fell by -10 rigs to a 4-3/4 month low of 599 rigs, moderately 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 Falls as Heating Demand Wanes and Inventories Climb
• Dollar Strength and Suspect Chinese Energy Demand Weighs on Crude Prices
• Nat-Gas Prices Slip as Warm Winter Temps Undercut Demand
• Crude Declines on Dollar Strength and Energy Demand Concerns