Crude Slightly Higher on Increased Chinese Fuel Demand

Mar WTI crude oil (CLH23) this morning is down -0.04 (-0.05%), and Mar RBOB gasoline (RBH23) is down -4.88 (-1.95%).  March Nymex natural gas (NGH23) is down -0.028 (-1.13%).

Crude oil and gasoline prices this morning are mixed.  An increase in air travel in China is bullish for energy demand and crude prices.  Gains in crude are limited as the dollar index (DXY00) rose to a 1-1/4 month high.  Crude prices are also being weighed down on negative carryover from Wednesday when the EIA reported that U.S. crude inventories surged to a 20-month high.

Mar nat-gas this morning is moderately lower after weekly EIA nat-gas supplies fell less than expected.  The EIA today reported that weekly U.S. nat-gas inventories fell -100 bcf, a smaller draw than expectations of -108 bcf.  A mixed weather forecast may curb heating demand for nat-gas and is also weighing on prices.  Forecaster Maxar Technologies said record cold is expected in the Northwest by the end of the Feb 21-25 period, with abnormally mild conditions for the Southeast.

An increase in Chinese air travel supports fuel demand and crude prices.  The Civil Aviation Administration of China (CACC) reported 55.2 million air passenger trips in China from January 7 to February 15, up +39% from the same time last year and at 76% of 2019's level.

Weakness in the crude crack spread is bearish for crude prices.  The crack spread today fell to a 1-week, discouraging refiners from purchasing crude to refine it into gasoline and distillates.

A bullish factor for crude was today's comment from Saudi Arabian Energy Minister Abdulaziz bin Salman who said the OPEC+ alliance plans to maintain its oil deal set in October for the rest of this year.  Also, UAE Energy Minister Suhail Al Mazrouei said Monday that despite Russia's plan to cut crude output, global oil markets remain balanced, and OPEC+ producers don't need to intervene.  Russia last Friday said it plans to cut its oil production in March by 500,000 bpd in retaliation for international sanctions, but the announcement had a limited bullish impact since Russia needed to cut production anyway to account for sanctions and reduced demand for Russian oil.

In a bullish factor, the International Energy Agency (IEA) Wednesday raised its 2023 global oil demand forecast by +200,000 bpd (+0.2%) to 101.9 million bpd from a prior estimate of 101.7 million bpd, citing the reopening of China's economy.  

In a bullish factor, Vortexa on Monday reported that the amount of crude stored on tankers that have been stationary for at least a week fell -9.5% w/w to 72.85 million bbl in the week ended February 10.

On February 1, 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 at about 2 million bpd, in the second half of this year when accelerating demand will tighten the market.  OPEC crude production in January fell by -60,000 bpd to 29.12 million bpd.

Wednesday's EIA report showed that (1) U.S. crude oil inventories as of February 10 were +7.3% above the seasonal 5-year average, (2) gasoline inventories were -4.9% below the seasonal 5-year average, and (3) distillate inventories were -15.3% below the 5-year seasonal average.  U.S. crude oil production in the week ended February 10 was unchanged w/w at 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 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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