Oil prices are lower this morning (despite a small crude draw reported by API overnight) amid concerns about a jump in Covid-19 cases after China suddenly rolled back pandemic rules (which is ironic because prices were down just weeks ago because of the Zero-COVID rules). Rising infections may dampen enthusiasm for the possible rise in demand as the country works to restore productivity.

“The lack of clarity over the virus situation in China has prompted some new travel rules from various countries, which could serve as some dampener for previous optimism,” said Jun Rong Yeap, market strategist at IG.

The U.S. refilling its strategic petroleum reserves “should be supportive for the market and could have put a bit of a floor in place,” said Craig Erlam, senior market analyst at OANDA.

The impact of the huge winter storm is unlikely to have hit these data yet.

API

• Crude -1.30mm
• Cushing -338k
• Gasoline +510k
• Distillates +38k

DOE

• Crude +718k
• Cushing -195k
• Gasoline -3.105mm - biggest draw since Sept
• Distillates +283k

Following API's reported small crude draw, the official data showed a small crude build (+718k), but gasoline stocks plunged for the first time since early Nov...

Source: Bloomberg

The small commercial crude build was more than offset by a 3.mm barrel drain from the SPR, which dragged the emergency reserve for to Dec 1983 levels...

Source: Bloomberg

US crude production remained flat last week...

Source: Bloomberg

WTI hovered around $77.75 ahead of the official data and extended losses after the surprise build

Amid the extremely low liquidity, volatility is heightened this week after the Kremlin said this week it would ban exports of Russian crude oil and refined products to foreign buyers that adhere to a price cap.

“The outlook remains highly uncertain for the oil market,” said Craig Erlam, senior market analyst at Oanda.

China’s success in pivoting away from Covid-Zero could be key to a recovery but it will take time to understand the implications on oil demand, he said.

But oil still looks set to close the year with a gain.

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