Oil Rises as China Battles Pandemic Restrictions
Oil prices increased on Tuesday over supply side concerns while pandemic restrictions in China, the world’s largest oil-consuming country, continue to raise demand concerns and weigh on prices.
International benchmark Brent crude traded at $94.91 per barrel today, up 0.96% from the closing price of $94 a barrel in the previous trading session.
American benchmark West Texas Intermediate (WTI) traded at $88.69 per barrel at the same time for a 1.03% gain after the previous session closed at $87.78 a barrel.
According to data released by the US Department of Energy (DOE) on Monday, emergency crude oil stocks in the country dropped by 8.4 million barrels last week to reach 434.1 million barrels, its lowest level since October 1984.
This drawdown was the highest from the Strategic Petroleum Reserve (SPR) since May, with the batch including roughly 6.3 million barrels of sweet petroleum and about 2 million barrels of sour crude.
The stock withdrawal was in line with US President Joe Biden’s pledge in March to release 1 million barrels per day over six months from the SPR to fight high fuel prices in the country.
Market players are focused on how the current price caps on Russian oil exports and EU sanctions will alter the supply outlook.
EU leaders decided in early July to cut Russian oil imports by 90% by the end of the year in accordance with the sixth set of sanctions.
The strategy calls for phasing out Russian crude oil shipments by Dec. 5 and refined product deliveries by Feb. 5.
The EU’s recent decision to cap Russia’s crude oil export prices came after the bloc’s proposal to largely ban Russian oil. However, in retaliation, Russia shut down the vital Nord Stream pipeline that transports gas to Europe ‘due to a technical issue.’
Further blurring the supply outlook, European powers on Saturday expressed ‘serious doubts’ over Iran’s intentions in negotiating a nuclear agreement and cautioned that Tehran’s stance could jeopardize efforts to revive the 2015 pact.
The much-expected deal will allow Iran to enjoy sanctions relief and to sell its oil worldwide in return for tough restrictions on its nuclear program.
Meanwhile, fuel demand in China is expected to decline after the country boosted COVID-19 restrictions, which affect over 65 million people in more than 30 cities, including many in Chengdu, a city of 21 million citizens in the country’s southwest, where an indefinite lockdown was imposed at the start of the month.
Oil Demand Estimate for 2023
The Organization of the Petroleum Exporting Countries (OPEC) estimated that global oil demand would remain unchanged from its report last month at 102.7 million barrels per day (bpd) in 2023, according to OPEC’s latest monthly oil market report released on Tuesday.
This forecast marks a rise of 2.7 million bpd compared to 2022 as global oil demand remains unchanged from last month’s forecast at 100 million bpd. According to the report, gas-to-oil substitution for power generation and industrial consumption in OECD Europe and Asia represents an important component of the demand outlook for the year.
In the non-OECD region, oil demand for the year is expected to rise by 1.5 million bpd to 53.7 million bpd. A steady increase in industrial and transportation fuel demand, supported by a recovery in economic activity and the easing of COVID-19 restrictions in China, are projected to boost demand in 2022. READ: Nigeria Battles JP Morgan in Court over Oil Deal
In the OECD, oil demand is forecast to rise by 600,000 bpd, with OECD Americas expected to climb firmly and with US oil demand above 2019 levels mainly due to the recovery in transportation fuels and light distillate demand. OECD Europe and the Asia Pacific region will also see rises above 2019 consumption levels.
OPEC expects solid economic performance in major consuming countries, potential improvements in COVID-19 restrictions and reduced geopolitical uncertainties will support oil demand next year.
Global supply increases in August
Global oil supply in August increased by around 1.3 million bpd compared to the previous month to an average of 101.3 million bpd. OPEC crude oil production averaged 29.6 million bpd in August for a month-on-month increase of about 618,000 bpd. Crude oil output increased mainly in Libya and Saudi Arabia, while production in Nigeria declined.
The share of OPEC crude oil in total global production increased by 29.3%, or 200,000 bpd, in August compared to the previous month. During this period, OPEC natural gas liquids were recorded as 5.4 million bpd, while non-OPEC production rose month-on-month by around 700,000 bpd to 71.6 million bpd in August.
OECD Americas and OECD Europe along with other Eurasian countries drove increased production in August, which saw a rise of 500,000 bpd, while production in Russia and some other countries declined. # Oil Rises as Chinese Battles Pandemic Restrictions
