Ongoing issues with China’s economy have hurt their demand for oil overall, states Phil Flynn of the PRICE Futures Group.
Yet despite those economic headwinds, there seem to be more signs that their oil demand will exceed recent damped down expectations and could be a driver for prices at a time when global oil demand is already most likely using daily supply.
Reuters reported last week that, “China’s crude oil imports could rebound by 6-7% this year, reversing 2021’s rare decline as buyers step up purchases for new refining units and replenish low inventories, analysts and oil company officials said. Robust demand from China, which accounts for a tenth of the global crude trade, would help underpin global oil prices, keeping supplies tight amid forecasts for a jump in crude prices to $100.00 a barrel or more."
Saudi Arabia seems confident enough in Chinese oil demand to raise its prices. Reuters reported that Saudi Aramco has raised prices for all crude grades it sells to Asia in March from February, in line with market expectations. They increased its March price for its Arab light crude grade for Asian customers by 60 cents a barrel versus February, to a premium of $2.80 a barrel to the Oman/Dubai average, Aramco said on Saturday. The producer had been expected to raise the March price for the flagship-grade to Asia by 60 cents a barrel, according to a Reuters survey of seven refining sources in late January.
Oil is getting some supply relief on reports that Libya’s oil export terminals have reopened. According to oil minister Mohamed Oun of the UN-backed government of national unity, Libya’s oil production is at 1.17million barrels of oil a day.
Price caps do not work, but governments keep trying them anyway. Reuters is reporting that Japan is expected to hike its gasoline subsidy for oil distributors to five yen ($0.04) a liter for the week starting on Thursday, a government source told Reuters, hitting a cap for the temporary scheme to blunt a sharp rise in fuel prices. Fuel prices have surged as crude oil prices soared to seven-year highs on concerns over tight global supply and potential supply disruption amid political tension in Eastern Europe. The increase is Japan’s third consecutive weekly hike since launching the emergency program late last month to compensate oil wholesalers for their costs, in an effort to rein in prices and eventually keep down retail rates. Good luck, it should work about as well as Biden’s attempts to cool off gas prices.
Reuters also is reporting in an exclusive that, “The Biden administration is considering a Chevron Corp (CVX) proposal to allow the US oil major to accept and trade Venezuelan oil cargoes to recoup unpaid debt, four people close to the discussions said. Chevron representatives in recent months held at least one high-level meeting with US diplomats along with Venezuelan opposition envoys, according to two of the people." They described it as a milestone in the company’s year-long lobbying efforts to win a change in its license to operate in Venezuela, according to Reuters. From a US consumer standpoint, it would be good news if Chevron could get their hands on Venezuelan oil. US refiners were built for that heavier oil and a lot of the Venezuelan oil has been filled by Russia. It is also being filled by Canadian oil sand oil.
Russian oil is still flowing to the US and the fact that the so-called imminent invasion of Ukraine has not happened had some selling oil in relief. Today, Russian President Vladimir Putin meets with French President Emmanuel Macron to cool down tensions.
Yet the fundamentals of this market are very tight with not a lot of room for error. Oil is overbought so we must be on guard. Breaks should be bought and kept on those hedges.
Learn more about Phil Flynn by visiting Price Futures Group.