Crude Recovers Early Losses as U.S. Economic Strength Signals Strong Energy Demand

April WTI crude oil (CLJ23) this morning is up +0.92 (+1.22%), and Apr RBOB gasoline (RBJ23) is up +0.06 (+0.02%).  March Nymex natural gas (NGH23) is up +0.104 (+4.49%).

Crude oil and gasoline prices this morning recovered from early losses and are moderately higher.  Stronger-than-expected U.S. economic reports today on Jan personal spending, Jan core PCE deflator, and Jan new home sales signal economic strength that is supportive for energy demand and crude prices.  Crude this morning initially moved lower after the dollar index (DXY00) rallied to a 1-1/2 month high and after the S&P 500 fell to a 5-week low, which weighs on confidence in the economic outlook that is bearish for energy demand.

Mar nat-gas this morning is moderately higher on the outlook for colder U.S. temperatures.  The commodity Weather Group today said that colder-than-normal temperatures are seen across the western half of the U.S. through March 5.  Another supportive factor for nat-gas prices is the outlook for reduced U.S. nat-gas output after several gas producers said they are cutting nat-gas production due to the recent plunge in prices to a 2-1/4 year low.

An increase in crude exports from Libya is a bearish factor for crude prices.  Bloomberg data on crude loadings shows Libya plans to export 1.05 million bpd of crude in February, up +2.5% m/m.

Rising crude demand in India, the world's third-largest crude consumer, is bullish for prices.  India's oil ministry predicts India's oil-products consumption will climb by +4.9% y/y to a record 233.8 MT in the 12 months from April.  

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 -8.4% w/w to 71.27 million bbl in the week ended February 17.

Recent Chinese news shows an uneven economic recovery that is bearish for energy demand.  In January, China's car production and sales fell more than -30% from a year ago.  Also, China's housing market remains in a slump as Jan home sales for the top hundred Chinese developers fell -33% y/y.  On the positive side, increasing 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.

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.  Saudi Arabian Energy Minister Abdulaziz bin Salman last Thursday 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 last Monday that despite Russia's plan to cut crude output, global oil markets remain balanced, and OPEC+ producers don't need to intervene.

Thursday's weekly EIA inventory report was mixed for crude and products.  On the bullish side, EIA gasoline supplies unexpectedly fell -1.8 million bbl versus expectations of a +900,000 bbl build.  Conversely, EIA crude inventories rose +7.65 million bbl to a 1-3/4 year high, exceeding expectations of a +2.8 million bbl build.  Also, EIA distillate stockpiles unexpectedly rose +2.7 million bbl versus expectations of a -1.2 million bbl draw.  In addition, crude supplies at Cushing, the delivery point of WTI futures, rose +700,000 bbl to a 1-1/2 year high.

Thursday's EIA report showed that (1) U.S. crude oil inventories as of February 17 were +9.1% above the seasonal 5-year average, (2) gasoline inventories were -5.4% below the seasonal 5-year average, and (3) distillate inventories were -12.4% below the 5-year seasonal average.  U.S. crude oil production in the week ended February 17 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 17 fell by -2 rigs to 607 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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