China: Oil consumers face heat of pain as China begins to back into market

oil bull starting to imagine a world in which ChinaThe engine of demand growth, comes back to the market.

And if his analysis is correct, summer is about to be painful for oil consumers everywhere, who are already facing rising prices – whether it’s Americans paying $5 a gallon of gasoline, or Brits paying £100 ( $125). normal car.

In China, the renewed restrictions in Shanghai point to a rough road ahead, but the world’s biggest crude importer is temporarily emerging from its latest battle with Covid-19. It is set to add consumption to a market that has traded around $120 a barrel for its longest period in years, with little help from China.

“I have never seen this combination of circumstances in my career over the past 50 years,” said Gary Ross, a veteran oil advisor turned hedge fund manager at Black Gold Investors LLC. “The world has very little spare capacity, the economy outside China is strong, China is now coming back and we are in the middle of a global oil blockade.”

OPEC+ officials said they may add some additional supplies this week, while similar disruptions to the global fleet of oil refineries are causing consumers to face fuel prices that are rising faster than crude. Huh.

Several countries have announced sanctions on Russia, one of the world’s largest producers, following the invasion of Ukraine. This is disrupting the available supply of crude and fuel. Consumption of refined products is overtaking production, further leading to degradation of goods.

mostly wall Street Shares Bullish Tech. This week, Goldman Sachs Group Inc. said it expects Brent to peak at $140 a barrel in the coming months. Morgan Stanley Said that its most bullish scenario could be a move higher to $150. Brent’s record is $147.50, set in July 2008.

bouncing back

China National Petroleum Corp estimates the country’s consumption could rise 12% in the third quarter. Bank of China International said it expects a modest improvement in the third quarter and a strong improvement in the fourth quarter.

“Without China we are at $120, so when China comes back, oil is going to go higher,” Amrita Sen, chief oil analyst at Consultant Energy Aspects Ltd., told a conference in Calgary. “Even with higher prices, the demand continues because people, they want to travel, they want to move out. And secondly, the governments around the world are subsidizing the prices.

Those subsidies – or less taxation – are driving demand from Mexico to countries in South Africa. This is the reason why oil prices have risen despite US petrol futures already trading close to $180 a barrel.

Russia is a major supplier of refined products, especially diesel, where wholesale prices in Europe are around $170. The premium for both diesel and gasoline relative to crude oil has broken records in the US and Europe this year, depleting fuel stocks in the summer.

maxed out

Some of the top market policy figures agree that the world currently does not have enough solvency.

State Department senior adviser for energy security Amos Hochstein told an RBC Capital Markets conference this week that low investment in the energy sector and declining refining capacity have been significant contributors to fuel shortages, a view held by Saudi Arabia. resonates. Energy Minister. The Biden administration has called on the US refining industry to even shut down mothball plants again.

All this means that, despite Organization of the Petroleum Exporting Countries And while its allies promised earlier this month to increase production more than expected, there is now little sign that if that happens it will rapidly derail the market.

OPEC Secretary-General Mohamed Barkindo said this week only two or three members of the group have room to ramp up production.

Even with parts of Shanghai going back into Covid restrictions, traders believe a final pickup in consumption will come in an oil market where production has been largely tapped for now. Is.

For consumers, this is particularly risky ahead of summer, when demand for travel and air conditioning increases consumption of the refined product.

United Arab EmiratesOne who was also dismayed at how much supply producers could add to the market gave the dire warning that it could be a long summer ahead.

“We need to remember that China is not back yet,” UAE Energy Minister Suhail Al-Mazrouei said at a conference in Jordan on Wednesday. “If we continue to consume, with the pace of consumption we have, we are nowhere near the peak, because China is not back yet.”