Crude Sharply Higher on Chinese Energy Demand Optimism

Rich Asplund - Barchart - Tue Feb 7, 2023

Mar WTI crude oil (CLH23) on Tuesday closed up +3.03 (+4.09%), and Mar RBOB gasoline (RBH23) closed up +8.34 (+3.51%).

Crude oil and gasoline prices Tuesday settled sharply higher. A weaker dollar Tuesday was bullish for energy prices. Also, optimism about stronger Chinese energy demand was supportive for crude after Saudi Aramco on Monday unexpectedly raised its crude prices for Asian customers.

Crude prices climbed +35 cents/bbl above the Tuesday afternoon closing level when the API reported that U.S. crude supplies fell -2.2 million bbl last week. The consensus is that Wednesday's weekly EIA crude inventories will climb +2.0 million bbl.

Crude prices have carry-over support from Monday when Saudi Aramco unexpectedly increased the price of its Arab Light grade crude shipped to Asian customers in March by 20 cents a barrel versus an expected cut of 20 cents. That was the first price increase for that crude grade since September.

Last Wednesday, 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 about 2 million bpd, in the second half of this year when accelerating demand will tighten the market. OPEC Jan crude production fell -60,000 bpd to 29.12 million bpd.

In a bearish factor, Vortexa on Monday reported that the amount of crude stored on tankers that have been stationary for at least a week rose +3.5% w/w to 76.69 million bbl in the week ended February 3.

Last Wednesday's EIA report showed that (1) U.S. crude oil inventories as of January 27 were +3.5% above the seasonal 5-year average, (2) gasoline inventories were -6.8% below the seasonal 5-year average, and (3) distillate inventories were -17.1% below the 5-year seasonal average. U.S. crude oil production in the week ended January 27 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 February 3 fell by -10 rigs to a 4-3/4 month low of 599 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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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.