Oil Falls as China Rate Cuts Sends Negative Signals
The crude oil market switched gear after its early gains on Monday. Prices slumped due to weak demand amidst uncertainties in China, and the United States. Earlier today, China cut the prime rate in order to boost its dwindling economic figure. Market data showed that US crude futures finished 0.7% lower at $80.72 a barrel, while the global benchmark Brent fell 0.5% to around $84.
“While the supply cuts by OPEC+ are resulting in demand outstripping supply and establishing a price floor of around $80.00 for Brent crude, the supply cuts have also resulted in a spare capacity of nearing 6.0 million b/d,” says Stratas Advisors in a research note.
“As such, if crude prices start to ramp up, it will be tempting for some of the OPEC+ producers to increase supply, which will put downward pressure on oil prices.” It adds that worries over a weak global economy are a persistent “dampening” factor for oil prices.
The United States and China maintained positions as major oil buyers, and crude consuming economies, according to an analysis by the International Energy Agency (IEA).
The United States consumed 19 million barrels of oil per day, followed by its fiercest economic and political competitor, the People’s Republic of China, with 14 million barrels per day this past year.
The rest of the top 8 consumers combined only amounted to two thirds of the amount used by the U.S. and China. According to an analysis by the International Energy Agency (IEA), 29 per cent of the world’s energy supply in 2020 came from oil.
Energy – Moving closer to LNG strike action
The global natural gas market should get more clarity around potential strike action at Australian LNG facilities this week, ING Economics said in a note today. Over the weekend, workers at Woodside said they would give the company until the end of Wednesday to come to a deal – otherwise, they will call industrial action.
Woodside’s North West Shelf (NWS) facilities have a capacity of around 16.7mtpa, equivalent to a little over 4% of global supply. We should also get more clarity on what workers at Chevron’s Gorgon and Wheatstone facilities decide by 24 August.
These two facilities have a combined capacity of 24.5mtpa. Given that European gas storage is now around 91% full, we believe any strength in prices should be short-lived.
“We would need to see a large amount of the at-risk capacity (41.2mtpa) offline for a prolonged period in order to lead to a significant change in European fundamentals, at least over the next month or two”.
Chinese trade data released last week shows that LNG imports in July totalled 5.86mt, down from 5.96mt the previous month, although, still up 24.3% year on year.
This leaves cumulative LNG imports at 39.24mt, up 9.3% YoY. These stronger YoY flows are to be expected, given the impact of covid-related lockdowns last year. It is important to point out that cumulative imports are still down more than 13% from 2021 levels.
Trade data also showed that Chinese diesel exports grew significantly, with 910kt exported over July, up from 290kt in June and a 153% increase YoY. This leaves cumulative exports at 8.4mt – an almost 250% increase year on year.
Stronger run rates and larger export quotas have supported these stronger flows, whilst a strong global middle distillate market more recently will also be supportive of these flows.
The latest rig data from Baker Hughes shows that the number of active oil rigs in the US fell by 5 over the week to 520 – the lowest level since March last year.
The US has lost 107 oil rigs since early December and it is not too surprising that this reduced drilling activity means that oil production growth forecasts for later this year and through 2024 are looking relatively modest.
#Oil Falls as China Rate Cuts Sends Negative Signals Nigerian Treasury Bills Yield Rises to 7%
