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Crude Demand Concerns Weigh on Prices


Crude oil and the product markets have given back most of their early November gains as demand concerns continue to weigh on prices. While there has been a mildly positive shift in global risk sentiment today, crude seems capable of extending its selloff over the rest of the week. December crude oil saw heavy losses on Wednesday and extended that to a new 2-week low overnight. Ongoing concern that China’s “Covid Reopening” will be pushed further into the future has kept pressure on the energy markets. Millions of workers in Guangzhou were required to take new COVID tests. The EIA’s latest Short-Term Energy Outlook provided some lukewarm support, as it forecast fourth quarter OPEC production to decline by 600,000 barrels per day (bpd) to 28.6 million. Reports that Russia’s production could fall below 9 million bpd once the EU’s import embargo begins next month could also be supportive. The weekly EIA report showed a much larger than expected increase in US crude oil supply last week, to its highest level since July 2021. A large portion of that build has come from the SPR, which showed another sizable weekly draw. It has fallen 197 million barrels since the end of 2021. US crude oil production climbed to 12.1 million bpd, which has been the high end of the range since April. US crude oil imports reached a 7-week high, exports fell to a 4-week low, and refinery throughput climbed back above the 16 million bpd level for the first time in 10 weeks.

oil rig at sunset


After spending the early part of Wednesday in positive territory, December natural gas fell to a 1-week low and finished with a moderate loss. The market is slightly higher today but inside the bottom half of yesterday’s range. While remaining below normal, there was a slight uptick in temperatures in the latest 8-14 day forecast for much of the US that could diminish heating and power plant demand expectations. The EIA’s Short-Term Energy Outlook has projected that US natural gas storage will be drawn down by 2,110 bcf this winter, which would be roughly in-line with the 5-year average. Storage is expected to be 8% below the 5-year average by the end of March. The Reuters survey for the weekly EIA storage report has a median forecast calling for a net injection of 81 bcf last week, versus 107 bcf the previous week and 15 bcf a year ago. If the report comes in as expected, storage will be 2% below the 5-year average for this time of the year. Production has fallen from record highs, and there are encouraging signs that the Freeport LNG export facility will partially reopen later this month. If the EIA report shows a lower-than-expected injection, natural gas could regain upside momentum.


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