March WTI crude oil (CLH25) Monday closed down -1.49 (-2.00%), and March RBOB gasoline (RBH25) closed down -0.0217 (-1.05%).
Crude and gasoline prices tumbled to 2-week lows Monday and settled moderately lower. Crude prices were under pressure Monday due to the concern that weakness in China's economy will keep its energy demand depressed. Also, Monday's stock rout sparked a risk-off sentiment in asset markets. Losses in crude were contained as the dollar index (DXY00) fell to a 5-week low.
Weakness in China's economy is negative for energy demand and crude prices. The China Jan manufacturing PMI unexpectedly fell -1.0 to 49.1, weaker than expectations of no change at 50.1 and the steepest pace of contraction in 5 months. Also, the Jan non-manufacturing PMI fell -2.0 to 50.2, weaker than expectations of no change at 52.2.
Crude prices also have a negative carryover from last Friday when he reiterated his call for OPEC "to cut the price of oil," saying a decline in crude prices could starve Russia of revenue and put an end to the war in Ukraine.
An increase in crude oil held worldwide on tankers is bearish for oil prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days rose by +13% w/w to 66.26 million bbl in the week ended January 24.
Crude prices have carryover support from January 10 when the US imposed new sanctions on Russia's oil industry that could curb global oil supplies. The measures targeted Gazprom Neft and Surgutneftgas, which exported about 970,000 bpd of Russian crude in the first 10 months of 2024, accounting for about 30% of its tanker flow, according to Bloomberg data. The US also targeted insurers and traders linked to hundreds of tanker cargoes. In addition, President Trump on Wednesday warned that he would impose additional sanctions on Russia if Russian President Putin doesn't negotiate on Ukraine.
A decline in Russian crude oil exports is supportive of crude oil prices. Weekly vessel-tracking data from Bloomberg showed Russian crude exports fell by -260,000 bpd to 2.75 million bpd in the week to January 19.
The outlook for new sanctions on Iranian and Russian crude exports could limit global oil supplies and is bullish for prices. President Trump's pick for national security adviser, Mike Walz, vowed a return to "maximum pressure" on Iran. Last Thursday, incoming Treasury secretary Bessent said he would be "100% on board for taking sanctions up," especially on Russian oil majors.
Crude found support last month after OPEC+ pushed back a planned hike of its crude production by +180,000 bpd from January to April and said it would unwind its crude output cuts at a slower pace than planned. Also, the United Arab Emirates (UAE) said it will delay the planned 300,000 bpd increase in its crude production target from January to April. OPEC+ had previously agreed to restore 2.2 million bpd of output in monthly installments between January and late 2025. However, that is now pushed back until September 2026. OPEC Dec crude production fell -120,000 bpd to 27.05 million bpd.
Crude oil demand in China has weakened and is a bearish factor for oil prices. According to Chinese customs data, China's 2024 crude imports fell -1.9% y/y to 553 MMT. China is the world's biggest crude importer.
Last Thursday's weekly EIA report showed that (1) US crude oil inventories as of January 17 were -6.4% below the seasonal 5-year average, (2) gasoline inventories were -0.7% below the seasonal 5-year average, and (3) distillate inventories were -5.7% below the 5-year seasonal average. US crude oil production in the week ending January 17 was unchanged w/w to 13.477 million bpd, modestly below the record high of 13.631 million bpd from the week of December 6.
Baker Hughes reported last Friday that active US oil rigs in the week ending January 24 fell by -6 to a 3-year low of 472 rigs. The number of US oil rigs has fallen over the past two years from the 4-1/2 year high of 627 rigs posted in December 2022.
