Oil Rallies as Market Expects Increase Demand in US, China
Crude oil prices edged higher on Friday following robust economic data in China, and the United States, the world’s biggest oil consumers. International benchmark Brent crude traded at $94.03 per barrel on Friday, increasing by around 2.25% relative to the closing price of $91.96 a barrel on Friday last week.
West Texas Intermediate (WTI), the American benchmark, was trading at $92.81 a barrel at the same time on Friday, up 3.08% from last Friday’s session, which closed at $90.03 per barrel. The world’s two largest oil producers, Russia and Saudi Arabia, have cut back on production, raising supply fears that have driven prices to their highest point this year.
Both countries have agreed to cut output by around 1.3 million barrels per day (bpd) until the end of the year. Exacerbating supply concerns further, the Russian government announced plans last week to limit the export of gasoline and diesel fuel until fuel supplies and prices stabilize on the domestic market.
Although Russia’s diesel and gasoline exports are less than the country’s crude oil shipments, the export embargo before the winter and ongoing supply concerns have heightened market jitters. The surge in demand in the US and China, the world’s biggest oil consumers, also supported the upward price movement during the week.
The Energy Information Administration reported on Wednesday that US oil inventories decreased by about 2.2 million barrels compared to the American Petroleum Institute’s expectation of an increase of about 1.6 million barrels.
The unexpected decline in inventories signals an upswing in demand in the US. Furthermore, robust economic data from China, the world’s top oil importer, is signalling rising demand and bolstering prices. China’s week-long autumn festival holiday that begins Friday is anticipated to drive fuel demand with an anticipated rise in the number of travellers over the holiday.
The rally in oil ran out of momentum yesterday and Brent struggled to hold onto gains made in the early part of the trading session. There is likely reluctance amongst participants to push too much higher right now with the market clearly in overbought territory, according to ING analysts.
There is also possible nervousness that OPEC+ and specifically Saudi Arabia could start to ease cuts earlier than scheduled if prices move much higher- something that analysts have highlighted for quite some time now.
Gasoil cracks received a boost yesterday with the November ICE gasoil crack rallying from around US$30/bbl to close to US$34/bbl. This is after reports that the Chinese government told state refiners that it is unlikely that they will receive any further refined product export quotas this year.
The government has issued three batches of export quotas so far this year, totalling 39.99mt, up from the 37.25mt issued over the whole of 2022. There had been some hope that China would release further export quotas, which would help ease the tightness in middle distillate markets.
The latest inventory data from Global Insights shows that refined product inventories in the ARA region increased by 76kt over the last week to 5.29mt. Gasoil saw the largest increase in stocks, growing by 79kt to 1.99mt. However, it is still well below the 5-year average at the moment and will be a concern as US moves closer towards the winter months.
In Singapore, the latest data shows that total refined product inventories fell by 1.95MMbbls over the last week to 42.04MMbbls. The draw was largely driven by fuel oil stocks, which fell by 2.08MMbbls to 19.77MMbbls, while light distillates saw a marginal decline of 245Mbbls to 12.89MMbbls.
In the gas market, Henry Hub managed a second day of gains with the market settling almost 1.6% higher yesterday. This is despite US gas storage increasing by 90Bcf over the last week, slightly above the 88Bcf the market was expecting.
This leaves total US natural gas storage at 3.36Tcf, up 13.4% year on year and also 6% above the 5-year average. Forecasts for cooler weather appear to be what has driven the market higher. CBN Devalues Naira 12.95% despite Rising Foreign Reserves