Crude Moves Higher as the Dollar Retreats

Nov WTI crude oil (CLX22) on Thursday closed up +1.84 (+2.11%), and Nov RBOB gasoline (RBX22) closed up +7.31 (+2.78%).  

Crude oil and gasoline prices this morning recovered from 1-week lows and moved moderately higher.  A reversal in the dollar Thursday (DXY00) sparked short-covering in energy futures after the dollar index fell back from a 2-week high and fell sharply.  

Crude prices rallied Thursday despite a +9.88 million bbl increase in weekly EIA crude inventories as most of the increase came from the movement of U.S. emergency stockpiles into commercial strorage.  About 7.8 million bbl were released from the Strategic Petroleum Reserve last week.

Strength in the crude crack spread is bullish for crude prices as the crack spread Thursday climbed to a 1-1/2 month high.  A stronger crack spread encourages refiners to purchase crude oil to refine into gasoline and distillates.

Crude oil prices rallied sharply last week after OPEC+ Wednesday agreed to cut its collective output by -2.0 million bpd for November and December, a bigger cut than expectations of -1.0 million bpd.  Saudi Arabia's energy minister said the real-world impact of the crude production cuts would likely be around 1 million to 1.1 million bpd from November, given some members are already pumping well below their quotas.  

Concern about energy demand in China is bearish for crude prices.  An article in China's state-sponsored People’s Daily newspaper Tuesday said China's Covid Zero policy is “sustainable,” and the country must stick to the strategy.  China's strict Covid lockdowns have hurt energy demand in recent months.  Chinese refineries in July handled the least amount of oil since March 2020 as Covid lockdowns and refinery shutdowns for maintenance undercut crude demand.  Also, current crude demand remains weak as China's Bureau of Statistics reported China Aug crude processing rose just +0.9% from July and was still down -8% y/y to 12.69 million bpd.

Stronger crude demand in India, the world's third-largest crude-consuming nation, is bullish for oil prices.  India's Oil Ministry reported last Friday that India's Sep oil products consumption rose +8.1% y/y to 17.2 MMT.

Comments from Nigeria's oil minister last Wednesday were bullish for crude prices when he said OPEC wants crude prices around $90 per barrel and "we have to take every step to ensure prices remain" within this range.

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 -6.3% w/w to 85.45 million bbls in the week ended October 7.

OPEC crude production in September rose +230,000 bpd to a 2-1/2 year high of 29.89 million bpd.  An increase in crude exports from Libya is bearish for oil prices after Libya Sep crude exports jumped +25% m/m to 1.16 million bpd, a 14-month high.

Oil prices are seeing support from the dim prospects for a nuclear deal with Iran that would lift sanctions against Iran and allow its crude back onto the global markets.  The International Atomic Energy Agency (IAEA) recently said that "the information gap is bigger and bigger" on Iran's recent nuclear activities.  Also, the European Union's chief negotiator recently said that "in light of Iran's failure to conclude the agreement on the table, we will consult with our international partners on how best to deal with Iran's continued nuclear escalation."

Thursday's weekly EIA report was mixed for energy prices.  On the positive side, EIA distillate stockpiles fell -4.85 million bbl, a bigger draw than expectations of -2.0 million bbl.  Also, crude supplies at Cushing, the delivery point of WTI futures, fell -309,000 bbl.  On the bearish side, EIA crude inventories jumped +9.88 million bbl to a 14-month high, well above expectations of +1.0 million bbl.  Also, EIA gasoline supplies unexpectedly rose +2.0 million bbl versus expectations of a -2.0 million bbl draw.  

Thursday's EIA report showed that (1) U.S. crude oil inventories as of October 7 were -0.7% below the seasonal 5-year average, (2) gasoline inventories were -8.0% below the seasonal 5-year average, and (3) distillate inventories were -23.8% below the 5-year seasonal average.  U.S. crude oil production in the week ended October 7 fell -0.8% w/w to 11.9 million bpd, which is only -1.2 million bpd (-9.2%) 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 October 7 fell by -2 rigs to 602 rigs, just below the 2-1/4 year high of 605 rigs posted in the week ended July 29.  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.

• Crude Rebounds from Early Losses as the Dollar Tumbles
• Crude Slumps on Dollar Strength and Global Slowdown Fears
• Crude Prices Fall on Global Demand Concerns
• Crude Prices Decline on Global Slowdown Fears