Consumer countries gain the upper hand in oil markets
As 2021 draws to a close, the oil markets face uncertainties. Omicron has started to change perceptions of gross demand. Economies – especially in Europe – are starting to stutter, and Canada is also under pressure, with increasing restrictions in place.
All of this will impact the consumption of crude oil in the coming months.
Experts are not unanimous on the outlook for the oil markets in the coming months. Many expect the market to be in significant surplus in the first half of 2022. But you can’t write off those who continue to insist that underinvestment in the petroleum sector could cause producers to fail. significantly below global demand.
In recent months, the oversupply of crude has been a major topic of discussion in the oil markets. That moment could soon arrive, predicts Tom Kool in his article on Oil Octobers.
Besides the COVID-19 Omicron variant, other factors appear to be at play.
China, the world’s largest importer of crude, has recently shown signs of slowing demand. China’s strict anti-COVID measures and its continued crackdown on independent refiners in Shandong have dampened the enthusiasm of bulls in the market, Kool said.
All of this will slow the delivery of crude oil to the world’s largest oil-importing country early next year, industry consultants told Bloomberg. Chinese imports in March 2022 will be around 10.7 million barrels per day (bpd), about one million bpd less than crude imports in March 2021, according to estimates by FGE consultants.
China has also reportedly increased its purchases of cheap Iranian crude. The clandestine flow of crude from Iran continues to increase, despite US sanctions.
Market information firm Kpler reported that China imported nearly 18 million barrels in November, the equivalent of about 600,000 barrels per day. This is almost 40% more than its October imports from Iran and the highest volume since August. China reportedly stepped up purchases of cheap Iranian crude last month after independent refiners secured additional import quotas for 2021. Traders say Iranian cargoes were sold at a discount of at least $ 4 le barrel compared to the price of ICE Brent.
Kpler’s import figures contradict official Chinese data, which indicates that the nation has not taken Iranian oil since December 2020. But Iran’s supplies to China have often been rebranded as coming from Iran. Oman and Malaysia.
So Asian refiners, including those in China, aren’t rushing to buy too much crude in the coming months. The Saudi price hike for January, the decline in overall crude demand amid Omicron’s uncertainty, China’s crackdown on illicit practices at its independent refiners, and the refinery maintenance season starting at the end of the first quarter 2022 led Asian refiners to refrain from additional supplies of Saudi crude. for loading in January, media reported last week.
In the meantime, the oil markets are about to undergo major structural adjustments. In early December, just before the virtual ministerial meeting of the Organization of the Petroleum Exporting Countries and its OPEC + allies, many observers said that due to the impact of Omicron, the producer group might not not go ahead with its planned additional production increase of 400,000 bpd.
But OPEC + surprised the markets by announcing that it would increase its production, despite a possible oversupply from the market. Many felt the decision had political overtones, with OPEC +, especially the Saudi hub, not wanting to annoy the United States. De facto Saudi Crown Prince Mohammad bin Salman is in desperate need of US support.
The increase in production also indicated the growing influence of consumers in the current market. OPEC + has chosen not to freeze production quotas because it fears angering major oil-importing countries, Nikolay Kozhanov wrote in Al Jazeera. This highlights new emerging realities and the changing dynamics of global hydrocarbon markets.
For several reasons, including a rush among producers to cash in assets below the surface before it is too late, the baton in the ongoing crude game appears to have gradually passed to consumers.
Another major rough transition is underway.
Based in Toronto, Rashid Husain Syed is a respected energy and political analyst, with the Middle East as his area of focus. In addition to writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. The Department of Energy in Washington and the International Energy Agency in Paris asked him to give his perspective on global energy issues. For maintenance requests, Click here.
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