Crude Recovers After Saudi Arabia Raises Crude Prices for March Delivery

Mar WTI crude oil (CLH23) on Monday closed up +0.72 (+0.98%), and Mar RBOB gasoline (RBH23) closed up +5.24 (+2.26%).  

Crude oil and gasoline prices on Monday recovered from early losses and closed moderately higher.  Crude prices found support Monday after Saudi Arabia unexpectedly increased its crude prices for Asian customers in March.  Crude oil prices initially fell to a 1-3/4 month low, and gasoline dropped to a 4-week low, after the dollar index rallied to a 3-1/2 week high.

A supportive factor for crude was Monday'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.

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.

In a bearish factor, Vortexa on Monday reported 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.
 

• Crude Slides on Concern About Chinese Energy Demand
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• Dollar Strength and Suspect Chinese Energy Demand Weighs on Crude Prices
• Crude Prices Slip on Dollar Strength and Robust U.S. Crude Inventories