Concerns about Chinese energy demand weigh on crude prices
April WTI crude oil (CLJ24) this morning is down -1.45 (-1.84%), and Apr RBOB gasoline (RBJ24) is down -4.40 (-1.71%).
This morning, crude oil and gasoline prices are taking a moderate dip, with Chinese energy demand causing some consternation in the markets. Additionally, the prospect of Israel joining peace talks in Paris regarding the Hamas war is adding to the pressure on crude oil prices, although this is somewhat offset by a weaker dollar and a buoyant S&P 500. The record high set by the S&P 500 reflects a broader confidence in the economy and energy demand, providing a slight cushion to the downward pressure on crude prices.
Geopolitical tensions and demand concerns shape the narrative
Reuter’s reports that Israel will be present at truce talks in Paris to discuss a ceasefire and the return of Israeli hostages, intensifying market jitters around crude prices. RBC Capital Markets has highlighted lackluster domestic oil demand in China, coupled with insufficient stimulus measures from the government, contributing to the current concerns. The growth in diesel inventories since mid-2023 is cited as a worrisome trend adding to the overall apprehension in the market.
Moreover, geopolitical tensions, such as the Israel-Hamas conflict potentially expanding to Lebanon, as indicated by Hezbollah’s retaliatory threats against Israel, have investors on edge. Concurrently, the US and UK airstrikes against Houthi rebels in Yemen following attacks on commercial shipping are creating disruptions in the supply chain, further influencing crude prices.
Disruptions in supply and their impact on crude prices
The recent drone attacks on Russian refineries and oil storage facilities by Ukraine have hindered Russian fuel exports. Attacks on major Russian facilities, such as Lukoil PJSC and Rosneft PJSC, have led to shutdowns and reduced production, posing a threat to Russian crude exports. Tanker-tracking data reveals a decline in Russian crude exports, providing support to crude prices amid the supply disruptions.
Factors propelling oil prices
In contrast to supply-side disruptions, strong oil-product consumption in India, the world’s third-largest crude consumer, is bolstering oil prices. Additionally, a decline in crude held in floating storage, coupled with OPEC+ production cuts aimed at stabilizing prices, is contributing to the bullish sentiment in the market.
Production cuts and market dynamics
OPEC+ agreed to cut crude production through June 2024, with Saudi Arabia and Russia leading the pact with significant unilateral cuts. However, compliance with these cuts has varied, with a Bloomberg survey indicating a shortfall in production reduction targets in January. Moreover, Angola’s exit from OPEC further adds complexity to the production dynamics within the group.
US market indicators
The latest EIA report highlights that US crude oil inventories and production remain critical factors influencing global oil markets. While crude oil inventories are below the seasonal average, maintaining production at record highs poses challenges to balancing supply and demand.
Active US oil rigs, as reported by Baker Hughes, are closely monitored indicators reflecting trends in domestic oil production. Despite a recent decrease in active rigs, the overall trajectory over the past year signals nuanced shifts in the US oil industry.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
