Crude Prices Tumble on Dollar Strength and Economic Concerns

Mar WTI crude oil (CLH23) this morning is down -2.31 (-2.94%), and Mar RBOB gasoline (RBH23) is down -4.81 (-1.97%).  March Nymex natural gas (NGH23) is down -0.121 (-5.06%).

Crude oil and gasoline prices this morning tumbled to 1-1/2 week lows.  A rally in the dollar index (DXY00) today to a 6-week high is undercutting energy prices.  Also, hawkish central bank comments today that favor higher interest rates may lead to a slowdown in the global economy that reduces energy demand.  Finally, a slump in the S&P 500 today to a 2-week low today shows pessimism in the economic outlook that is negative for energy demand.

Mar nat-gas today sold off to a new 2-year nearest-futures low.  Forecasts for above-normal winter weather in the northern hemisphere will reduce heating demand for nat-gas and allow gas storage in Europe and the U.S. to build.  Forecaster Atmospheric G2 said well above-normal temperatures are expected across the eastern and southern U.S. states through February 26.  Also, forecasts for above-normal temperatures in Europe knocked European nat-gas prices down to a nearly 1-1/2 year low today.

The warm temperatures this winter have caused rising nat-gas inventories in Europe and the U.S., with gas storage across Europe currently 66% full as of February 13, far above the 5-year seasonal average of 46%.  Also, U.S. nat-gas inventories are +8.8% above their 5-year average as of February 10.

Weakness in the crude crack spread is bearish for crude prices.  The crack spread today fell to 2-month low, discouraging refiners from purchasing crude to refine it into gasoline and distillates.

An increase in Chinese air travel is supportive of 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.

A bullish factor for crude was Thursday'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.

• Crude Prices Fall on Higher U.S. Inventories
• Crude Slightly Higher on Increased Chinese Fuel Demand
• Crude Falls on Dollar Strength and Surge in EIA Crude Inventories
• Crude Tumbles as the Dollar Strengthens and EIA Crude Inventories Surge