Crude Prices Fall on Signs of Weak Chinese Energy Demand

January WTI crude oil (CLF26) today is down -0.84 (-1.46%), and January RBOB gasoline (RBF26) is down -0.0234 (-1.34%).

Crude oil and gasoline prices are under pressure today, with crude oil falling to a 1.75-month low and gasoline posting a 4.75-year nearest-futures low.  Concerns about global energy demand are weighing on crude prices amid weaker-than-expected Chinese economic news.  Also, today's fall in the S&P 500 to a 2-week low dampens optimism in the economic outlook that is negative for energy demand.  In addition, the potential for a Russian-Ukrainian ceasefire reduces geopolitical risks and is negative for crude prices.  

Today's weaker-than-expected Chinese economic news signals reduced energy demand and is bearish for crude prices.  China's Nov industrial production unexpectedly eased to +4.8% y/y from +4.9% y/y in Oct, versus expectations of an increase to +5.0% y/y.  Also, China's Nov retail sales rose +1.3% y/y, weaker than expectations of +2.9% y/y and the smallest pace of increase in 2.75 years.

Optimism that there could soon be an end to the war in Ukraine could lead to sanctions on Russian energy exports being lifted, which would be negative for oil prices, after Ukrainian President Zelenskiy said today that talks between the US and Ukraine to end the war with Russia were "very constructive."

Weakness in the crude crack spread is a negative factor for oil prices.  The crack spread fell to a 2.25-month low today, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates.

Vortexa reported today that crude oil stored on tankers that have been stationary for at least 7 days rose +5.1 w/w to 120.23 million bbl in the week ended December 12.

Ramped-up geopolitical risks in Venezuela, the world's 12th largest crude producer, are supportive for crude prices after US forces intercepted and seized a sanctioned oil tanker off the coast of Venezuela last Wednesday.  Reuters reported last Thursday that the US is preparing to intercept more sanctioned tankers transporting Venezuelan oil.  The seizures may make it more difficult for Venezuela to export its oil, as other shippers are now likely to be more reluctant to load cargoes from Venezuela.

Reduced crude exports from Russia are underpinning crude prices.  On November 19, Vortexa data showed Russia's oil product shipments fell to 1.7 million bpd in the first 15 days of November, the lowest in more than 3 years.  Ukraine has targeted at least 28 Russian refineries over the past three months, exacerbating a fuel crunch in Russia and limiting Russia's crude export capabilities.    Ukrainian drone and missile attacks recently damaged a Russian Baltic Sea oil terminal, forcing it to close.  The Caspian Pipeline Consortium, which carries 1.6 million bpd of Kazakhstan's crude exports, was forced to close after a pipeline was damaged at one of its moorings.  New US and EU sanctions on Russian oil companies, infrastructure, and tankers have also curbed Russian oil exports.

Crude also garnered support after OPEC+ on November 30 said it would stick to plans to pause production increases in Q1 of 2026.  OPEC+ at its November 2 meeting announced that members will raise production by +137,000 bpd in December but will then pause the production hikes in Q1-2026 due to the emerging global oil surplus.  The IEA in mid-October forecasted a record global oil surplus of 4.0 million bpd for 2026.  OPEC+ is trying to restore all of the 2.2 million bpd production cut it made in early 2024, but still has another 1.2 million bpd of production left to restore.  OPEC's November crude production fell by -10,000 bpd to 29.09 million bpd.

Last month, OPEC revised its Q3 global oil market estimates from a deficit to a surplus, as US production exceeded expectations and OPEC also ramped up crude output.  OPEC said it now sees a 500,000 bpd surplus in global oil markets in Q3, versus the previous month's estimate for a -400,000 bpd deficit.  Also, the EIA raised its 2025 US crude production estimate to 13.59 million bpd from 13.53 million bpd last month.

Last Wednesday's EIA report showed that (1) US crude oil inventories as of December 5 were -4.3% below the seasonal 5-year average, (2) gasoline inventories were -1.8% below the seasonal 5-year average, and (3) distillate inventories were -7.7% below the 5-year seasonal average.  US crude oil production in the week ending December 5 rose +0.3% w/w to 13.853 million bpd, just below the record high of 13.862 million bpd from the week of November 7.

Baker Hughes reported last Friday that the number of active US oil rigs in the week ending December 12 rose by +1 to 414 rigs, modestly above the 4-year low of 407 rigs reported on November 28.  Over the past 2.5 years, the number of US oil rigs has fallen sharply from the 5.5-year high of 627 rigs reported in December 2022.