Crude Closes Moderately Higher after Russia Cuts Oil Output

Mar WTI crude oil (CLH23) on Friday closed up +1.66 (+2.13%), and Mar RBOB gasoline (RBH23) closed up +5.62 (+2.30%).  

Crude oil and gasoline prices Friday rallied moderately, with crude posting a 1-1/2 week high and gasoline posting a 1-week high.  Crude prices rallied Friday after Russia said it was cutting its crude production by 500,000 bpd in March in retaliation for international sanctions.  A stronger dollar Friday was bearish for energy prices.

Crude prices rose Friday after Russia said it plans to cut its oil production in March by 500,000 bpd in retaliation for international sanctions.  OPEC+ said they wouldn’t boost output to make up for the shortfall.  However, gains in crude were limited by speculation that a lack of demand for Russian crude is prompting Russia to portray these output losses as a decision to cut their crude production when the output cuts might have occurred regardless.

Another bullish factor for crude is speculation that OPEC+ will not raise its crude production levels this year.  Energy Aspects said after they spoke to several oil officials in Saudi Arabia, their motto was "very much to stay put this year with no changes to OPEC+ policy regardless of the volatility we see in prices."

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 Friday that active U.S. oil rigs in the week ended February 10 rose by +10 rigs to 609 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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