Crude Prices Fall Back on Concerns About Tighter Fed Policy

April WTI crude oil (CLJ23) on Monday closed down -0.64 (-0.84%), and Apr RBOB gasoline (RBJ23) closed up +0.26 (+0.10%).  

Crude oil and gasoline prices Monday settled mixed.  Crude is under pressure on concerns that the Fed will continue raising rates to combat persistent inflation, which would slow the economy and energy demand.  However, losses in crude were limited, and gasoline eked out a modest gain due to a weaker dollar.  

Crude prices also fell back Monday after Bank of America said, "a weaker-than-expected start to the year has dented our relatively constructive oil market view in 2023," and they cut their 2023 Brent crude forecast to $88 a barrel from a previous estimate of $100 a barrel.

Recent Chinese news shows an uneven economic recovery that is bearish for energy demand.  Data this month shows property sales in China continued to plunge in the first three weeks of this month, and Chinese car sales continue to lag.  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.

Increased crude exports from Libya are a bearish factor for crude prices.  Bloomberg reports that 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 last 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.

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.

Last 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 24 fell by -7 rigs to 600 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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