Oil Surges On Signs Of Stronger Global Energy Demand

Crude Gains On Signs Of Stronger Global Energy Demand
Crude oil and gasoline prices on Thursday are moderately higher. Better-than-expected US economic data shows the US economy’s strength that is bullish for energy demand and fuel prices. There are also signs of strength in Chinese travel and consumer spending during the week-long Lunar New Year holiday supporting crude’s gains. However, the stronger dollar on the back of the positive data is limiting the crude’s upside today.

WTI crude oil is trading at $81.14 per barrel at the time of writing, versus the previous closing price at $80.45. Brent crude oil is trading at $87.32 at the time of writing, versus the the previous closing price at $86.26.

Feb natural gas on Thursday sank to a 1-3/4 year nearest-futures low. Global natural gas supply concerns have weakened leading to fund selling of natural gas futures as warmer winter weather in the Northern Hemisphere has reduced heating demand for natural gas and allowed the US and Europe to refill their inventories.

Natural gas prices fell sharply despite today’s weekly EIA natural gas inventories falling -91 bcf, a larger draw than expectations of -84 bcf.

Increased travel and consumer spending in China during the week-long Lunar New Year holiday is bullish for crude prices. The holiday season saw tourism rebound in Hong Kong and Macau, with 40,000 mainland visitors arriving in Macau on the second day of the holiday, the most since the start of the pandemic.

Today’s US economic news was better than expected and is positive for energy demand and crude prices. US Q4 GDP rose +2.9% (q/q annualized), stronger than expectations of +2.6%. Also, weekly initial unemployment claims unexpectedly fell -6,000 to a 9-month low of 186,000, showing a stronger labour market than expectations of an increase to 205,000.

In addition, December’s new home sales unexpectedly rose +2.3% m/m to 616,000, stronger than expectations of a decline to 612,000. Finally, December’s durable goods orders rose +5.6% m/m, stronger than expectations of +2.5% m/m and the biggest increase in nearly 2-1/2 years.

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.

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 December’s 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.

Wednesday’s EIA report showed that:

1. US crude oil inventories as of January 20 were +2.5% above the seasonal 5-year average.

2. Gasoline inventories were -7.7% below the seasonal 5-year average.

3. distillate inventories were -19.6% below the 5-year seasonal average. US crude oil production in the week ended January 20 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.