Crude Prices Jump on Chinese Energy Demand Optimism

Mar WTI crude oil (CLH23) this morning is up +2.69 (+3.63%), and Mar RBOB gasoline (RBH23) is up +7.51 (+3.163%).  March Nymex natural gas (NGH23) is up +0.080 (+3.26%).

Crude oil and gasoline prices this morning are sharply higher on optimism about stronger Chinese energy demand after Saudi Aramco on Monday unexpectedly raised its crude prices for Asian customers.  Also,  global supply concerns support crude prices after Turkey shut down oil flows to its Ceyhan export terminal after Monday's devastating earthquakes.  However, Turkey said it expects to resume oil flows later today after no damage to the pipelines was reported.  A rally in the dollar index (DXY00) today to a 4-week high is bearish for energy prices.

Mar nat-gas is moderately higher today on hopes that the Freeport LNG export terminal will soon be fully operational.  The terminal is expected to receive permission from the Federal Energy Regulatory Commission any day to resume full commercial operations.  Gains in nat-gas were contained after forecaster Atmospheric G2 said that "early spring-like warmth" is expected across the majority of the central and eastern U.S. next week, which will curb heating demand for nat-gas.

Crude prices have carry-over support from Monday when Saudi Aramco unexpectedly increased 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 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.

• Natural Gas- No Inventory and Supply Concerns Cause the Price Plunge
• Nat-Gas Consolidate Above a 2-Year Low
• Crude Recovers After Saudi Arabia Raises Crude Prices for March Delivery
• Crude Slides on Concern About Chinese Energy Demand