09/21 Closing prices / revised 09/22/2023  06:30 GMT  |    09/20    OPEC Basket      95.81        –1.08 |    09/21   Mexico Basket (MME)   $86.79  +0.01 06/23  Venezuela Basket (Merey) $57.37  + 1.15 ( from previous month)  (Est. OPEC)  | 09/21    NYMEX WTI Texas Intermediate  October  CLV23  $89.63     -0.03  | 09/21    ICE Brent November  BRNX23   $93.30   -0.23 | 09/21    NYMEX Gasoline October  RBV23    $2.62    +0.07   09/21    NYMEX  Heating Oil  October HOV23   $3.37     +1.2%   |  09/21    Natural Gas October NGV23    $2.84      -2.8%    09/15   Active U.S. Rig Count (Oil & Gas)    641      +9 | 09/22    USD/MXN Mexican Peso   17.1960    Live data  | 09/22      EUR/USD  1.0653    Live data  | 09/22   US/Bs. (Bolivar)      $33.9289000  ( data BCV)    |

Why China’s Reopening Isn’t Boosting Global Oil Markets Yet – Bloomberg

U.S. Manufacturing graph – Bloomberg

Alex Longley and Devika Krishna Kumar, Bloomberg News

EneegiesNet.com 01 06 2023

It’s been a painful start to the new year for oil bulls.

While China’s emergence from Covid Zero spurred talk of a demand boom from some of the market’s biggest names, a significant resurgence in energy consumption remains weeks, if not months away. 

Instead, global oil markets have started the year looking much like they did at the end of 2022: oversupplied due to a combination of lackluster demand and robust supply, while simultaneously struggling with thinner trading volumes than historically has been the case. 

Add to that a spate of unexpected outages and the result is a market that’s prone to big moves, making it challenging for traders of physical oil barrels to predict which way prices might be headed. 

“To me, the market is oversupplied by at least 1 million barrels a day,” said Gary Ross, a veteran oil consultant turned hedge fund manager at Black Gold Investors LLC. “We are going to have large stock builds. In a couple of weeks you’re going to be building 10 million barrels a week, how is the market going to handle that?” 

With the near-term oversupply compounded by a swath of US refinery closures following a recent deep freeze, here are some of the reasons why the oil market isn’t yet seeing the benefits of China’s big reopening. 

1) The Big Freeze

Shortly before Christmas, a cold snap hammered huge parts of the US, forcing rapid shutdowns of refinery capacity. At its peak, about 40% of Texas’ crude processing capacity was shut down, with a portion of that remaining offline into the first week of 2023. 

“We’ve seen these big freeze-offs in the US and that has meant that the crude balance has actually weakened,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said in a Bloomberg TV interview. 

2) Global Slowdown

Worries over the health of worldwide consumption continue to linger due to the risk of a synchronized deceleration in the US, Europe and China. On Tuesday, manufacturing figures showed the Chinese economy was in steep decline in late-2022. While mobility has improved in recent days, there are still concerns that the latest surge in infections will lead to further economic slowdown. 

In the US, manufacturing figures missed expectations and showed continued contraction Wednesday, while European figures also showed a pullback for December.

3) Seasonal Weakness

The first quarter of the year is typically a time when stockpiles build. The most recent forecast by the International Energy Agency estimated oil supplies at about 600,000 barrels a day above demand in the first quarter, and this was even before the impact of the US cold snap and resultant refinery closures were known.

“The stockbuild in the first quarter is going to be a reflection of first quarter activity and it will be in the doldrums,” Ross said.

Subsequently, warm weather in much of the West has also reduced some pressure across energy markets to meet heating demand. Most of the US is now expected to see warmer-than-normal temperatures from Jan. 10-16, according to the National Oceanic and Atmospheric Administration. 

Earlier, crude demand had received a boost as some power generation units switched from gas to oil amid a natural gas shortage.  

4) Technical Trouble

For months, the oil market has had to grapple with underwhelming liquidity as soaring volatility and margins pushed open interest to multi-year lows. The retrenchment has left prices susceptible to sharp swings on days when technical traders known as commodity trading advisors, or CTAs, dominate trading. 

This week, US crude futures briefly broke above their 50-day moving average, before dropping back below that level — a move that spurred additional technical selling. CTAs were also selling oil during Wednesday’s price drop, people involved in the market said. Momentum-driven selling is also adding to the rout, they added. 

5) Demand Destruction

“The abrupt lifting of Covid-19 restrictions and testing requirement since early December and the strong resurgence of infections subsequently have caused demand destruction in recent weeks, especially for gasoline and gasoil,” according to a note from FGE, referring to China.

While major cities such as Beijing, Shanghai and Guangzhou are past their Covid peak, rising cases in inland and rural areas will limit the demand upside in the near term, the industry consultant added.

Beijing has also granted another generous allocation of fuel export quota to refiners this year, prompting traders and analysts to forecast much of the demand boost from China would come in the later months. 

bloomberg.com 01 05 2023

Share this news

Support EnergiesNet.com

By Elio Ohep · Launched in 1999 under Petroleumworld.com

Information & News on Latin America’s Energy, Oil, Gas, Renewables, Climate, Technology, Politics and Social issues

Contact : editor@petroleuworld.com

CopyRight©1999-2021, EnergiesNet.com™  / Elio Ohep – All rights reserved

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission fromPetroleumworld or the copyright owner of the material.

Scroll to Top