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Crude Oil WTI(CLH23)

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Crude Prices Undercut as Demand Outlook Remains Uncertain

Barchart - Tue Jan 24, 3:59PM CST
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Mar WTI crude oil (CLH23) on Tuesday closed down -1.49 (-1.83%), and Mar RBOB gasoline (RBH23) closed down -4.80 (-1.78%).  

Crude oil and gasoline prices Tuesday posted moderate losses as the markets remain uncertain about the economic and energy demand outlook.  On the supportive side, a weaker dollar Tuesday was supportive of energy prices.

Crude prices were little changed from their Tuesday afternoon closing level after the API reported that U.S. crude supplies rose +3.38 million bbl last week.  The consensus is that Wednesday's weekly EIA crude inventories will climb +1.5 million bbl.

A report Tuesday from AlphaBBL was bearish for crude prices when the report projected that crude inventories at Cushing, the delivery point of WTI futures, would increase +4.8 million bbl in the week ending Jan 20.  If confirmed on Wednesday, that would be the biggest weekly increase in Cushing crude supplies since April 2020.

Delegates from OPEC+ said the group would maintain its crude production targets at current levels when they meet on Feb 1, as they await clarity on the recovery in consumption in China and the impact of sanctions on Russian crude supplies.  Goldman Sachs predicts that OPEC+ will only start to reverse its supply cuts, currently about 2 million bpd, in the second half of this year when accelerating demand will tighten the market.

Tuesday's economic news was supportive of energy demand and crude prices.  The U.S. Jan S&P Global manufacturing PMI unexpectedly rose +0.6 to 46.8, stronger than expectations of a decline to 46.0.  Also, the Eurozone Jan S&P Global composite PMI rose +0.9 to 50.2, stronger than expectations of 49.8 and the strongest pace of expansion in 7 months.  

Crude prices have support from Tuesday's report from Bloomberg that said the German government on Wednesday would revise its 2023 German GDP estimate to show growth of +0.2% versus an October projection of -0.4% contraction.

A bullish factor for crude is the removal of China's pandemic travel restrictions that have bolstered expectations for a jump in domestic and international flights in China during the week-long Lunar New Year that began on Saturday.

China boosted its crude import quotas earlier this month, a sign from the world's largest crude importer that it is gearing up to meet higher demand.  As of last week, China has issued a combined 132 million metric tons (MMT) of quotas for crude imports in 2023, well above the quota for 109 MMT at the same time last year.      

In a bullish factor, Vortexa reported Monday that the amount of crude stored on tankers that have been stationary for at least a week fell -1.2% w/w to 86.77 million bbl in the week ended January 20.

Increased OPEC crude output is bearish for oil prices.  OPEC Dec crude production rose +150,000 bpd to 29.140 million bpd.  OPEC+ on December 4 decided to keep the group's crude production targets unchanged for January, in line with expectations.  OPEC+ will meet again on February 1 to discuss its production targets.

Last Thursday's EIA report showed that (1) U.S. crude oil inventories as of January 13 were +3.0% above the seasonal 5-year average, (2) gasoline inventories were -7.7% below the seasonal 5-year average, and (3) distillate inventories were -19.7% below the 5-year seasonal average.  U.S. crude oil production in the week ended January 13 was unchanged w/w at 12.2 million bpd, which is only 0.9 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 January 20 fell by -10 rigs to 613 rigs, 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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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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