Crude Declines on Concern a Hawkish Fed Will Curb Energy Demand

April WTI crude oil (CLJ23) this morning is down -0.97 (-1.26%), and Apr RBOB gasoline (RBJ23) is down -2.09 (-0.77%).  April Nymex natural gas (NGJ23) is down -0.123 (-4.58%).

Crude oil and gasoline prices this morning are moderately lower.  Crude prices today extended Tuesday's losses after comments from Fed Chair Powell raised concerns the Fed might raise interest rates higher and for longer, which may weigh on economic growth and energy demand.  Crude prices remained lower today on a mixed EIA inventory report.

Apr nat-gas this morning is moderately lower.  Weaker demand from LNG export terminals along the Gulf Coast weighs on nat-gas prices.  BNEF data shows that estimated gas flows to U.S. LNG export terminals today was 12.1 bcf, down -7.6% w/w.  The slump in European nat-gas prices this week to a 1-1/2 year low is curbing European demand for U.S. nat-gas supplies.

Weakness in the crude crack spread is bearish for crude prices after the crack spread Wednesday dropped to a 1-week.  A weaker crack spread discourages refiners from increasing their crude purchases to refine the crude into gasoline and distillates.  

A bearish factor for crude was the action by Chinese Premier Li Keqiang on Monday to announce a GDP growth target for China this year at around 5%, below expectations of above 5% and below the 2022 target of around 5.5%, which is negative for energy demand.

In a bullish factor, Vortexa Monday reported that the amount of crude stored on tankers that have been stationary for at least a week fell -6.1% w/w to 80.8 million bbl in the week ended March 3.

Indian buyers of Russian oil are struggling to obtain the crude as onerous demands from financiers wary of breaching Western sanctions are making it hard for Indian buyers to secure financing for their purchases of Russian crude.  The inability to fund the purchases of Russian crude may force Indian buyers elsewhere to obtain crude supplies, which is bullish for oil prices.  

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.  

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 February rose by +120,000 bpd to 29.24 million bpd.

Today's weekly EIA report was mixed for crude and products.  On the bearish side, EIA gasoline supplies fell -1.13 million bbl, a smaller draw than expectations of -2.0 million bbl.  Also, EIA distillate stockpiles unexpectedly rose +138,000 bbl to a 13-month high versus expectations of a draw of -1.3 million bbl.  On the bullish side, EIA crude inventories unexpectedly fell -1.69 million bbl versus expectations of a +1.6 million bbl build.  Also, crude supplies at Cushing, the delivery point of WTI futures, fell -890,000 bbl.

Today's EIA report showed that (1) U.S. crude oil inventories as of March 3 were +7.8% above the seasonal 5-year average, (2) gasoline inventories were -4.2% below the seasonal 5-year average, and (3) distillate inventories were -8.1% below the 5-year seasonal average.  U.S. crude oil production in the week ended March 3 fell -0.8% w/w to 12.1 million bpd, which is only 1.0 million bpd (-6.9%) 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 March 3 fell by -8 rigs to a 5-3/4 month low of 592 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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