Crude Oil Prices Drop on Rising U.S. Inventories and Energy Demand Concerns

Mar WTI crude oil (CLH23) this morning is down -1.34 (-1.71%), and Mar RBOB gasoline (RBH23) is down -4.08 (-1.66%).  March Nymex natural gas (NGH23) is up +0.039 (+0.63%).

Crude oil and gasoline prices this morning are moderately lower.  Crude prices are under pressure on rising U.S. inventories after the EIA Wednesday reported that U.S. crude inventories rose to a 1-1/2 year high, gasoline inventories rose to a 9-1/2 month high, and distillate inventories rose to a 1-year high.  Crude prices are also weighed down by recent Fed comments that suggest the Fed will continue to raise interest rates, which would slow the economy and energy demand.

Mar nat-gas this morning is mildly higher after the EIA reported that weekly U.S. nat-gas inventories fell -217 bcf, a larger draw than expectations of -201 bcf.  The upside in nat-gas prices appears limited in the near term on the outlook for warmer U.S. temperatures that will reduce heating demand for nat-gas.  Forecaster Maxar Technologies said today that the central and eastern U.S. would see warmer-than-normal temperatures through Feb 18.

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.

According to Goldman Sachs, oil demand in China is picking up as the economy reopens, a bullish factor for crude.  Goldman reports that oil demand in China in mid-January rose to 15.5 million bpd from 14.5 million bpd in late November.  Goldman predicts that Chinese consumption of crude will climb by +1.0 million bpd in Q4 of 2023.

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.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of February 3 were +4.0% above the seasonal 5-year average, (2) gasoline inventories were -5.3% below the seasonal 5-year average, and (3) distillate inventories were -15.0% below the 5-year seasonal average.  U.S. crude oil production in the week ended February 3 rose +0.8% w/w to a 2-3/4 year high of 12.3 million bpd, which is only 0.8 million bpd (-6.1%) 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.

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