In this week’s Crude Oil Update, we discuss the OPEC+ production cuts, a war in Ukraine, and how oil markets have reacted to them. We also look at China’s industrial output, which is expected to grow 3.6% in 2022.
China’s industrial output expected to have grown 3.6% in 2022
China’s industrial output is expected to have grown 3.6% in 2022, according to the Ministry of Industry and Information Technology. The government aims to boost the recovery of the economy.
A document released by the Ministry of Industry and Information Technology called for “strengthening the structural upgrade of industries, supporting key sectors, and improving the quality of manufacturing”. In addition, the country would accelerate the development of major technical equipment.
Industrial production in China is a vital indicator of the overall economy’s health. This sector has contributed to a solid economic growth in the past few years. Its share of GDP reached 28 percent. However, a number of challenges remain ahead, including the COVID-19 epidemic.
Industrial output declined in October, although it was better than the previous month’s decline. Retail sales also decreased in November, but were much better than the predicted contraction of -7.1%.
Refinery crude runs rose by 128,000 bpd in the last week
Refinery crude runs in the United States rose by 128,000 barrels per day last week. While the increase was an improvement over the previous week, it was a minor increase in comparison to the previous month.
Capacity losses in the oil refinery sector have been widespread across the globe. The biggest drop in capacity was in the US, where the industry lost 4.5 percent of its production during 2020.
A number of factors have played a role in the loss of refining capacity. Pandemics, hurricanes, and arctic weather have all contributed to major refinery shutdowns.
Capacity is not a determinant of market value. There are a number of variables that affect the price of oil, including global demand and production. This is why it’s impossible to predict what will happen next.
Storage flexibility allows Brent to ride out periods of extreme storage shortages
As the world’s most liquid commodity, the oil market has seen its fair share of ups and downs. The first quarter saw a spike in price thanks to an influx of new supply, but recent events have stalled a rebound. However, a recent poll of analysts has predicted that Brent may trade at least $4 per barrel in the first quarter of this year. This would be a substantial discount to WTI.
One of the simplest ways to hedge your bets is to buy Brent in the form of futures contracts. These can be delivered via physical or electronic means. Alternatively, you can charter supertankers to do the dirty work for you. It’s a cost effective way to heave a sigh of relief.
Another advantage of trading Brent is its flexibility. In theory, you could have it shipped anywhere in the world. Additionally, it’s a waterborne crude, meaning it isn’t constrained by land.
Production cuts by OPEC+ tighten supplies ahead of the European Union embargo on Russian oil
In a sign of unified effort, the Organization of Petroleum Exporting Countries (OPEC) and its allies announced a production cut on Sunday. The cut will tighten supplies ahead of an embargo on Russian oil by the European Union beginning Monday. OPEC’s decision to cut output is a sign of its commitment to stability in the volatile oil market.
The organization is expected to cut output by two million barrels per day starting in November. However, it is unclear how the group will manage this. Some analysts have argued that a bigger cut could be needed to offset the effects of Russia’s upcoming ban on exports.
Several factors will influence a decision on how big the cut will be. Those include the oil price trajectory, the likelihood of a disruption due to the looming EU sanctions, and the amount of oil production that will be lost by a major exporter.
Russia-Ukraine war disrupts oil market
The war between Russia and Ukraine has caused a lot of chaos in the oil market. This is due to a series of supply chain disruptions. In addition, the conflict has pushed commodity prices to record highs. It has prompted political leaders to rethink their energy plans.
Europe, in particular, is importing a large amount of energy from Russia. In fact, the EU sent Russia $24 billion in gas and oil in March.
Russia is also a major producer of several base metals, such as palladium and titanium. These metals are used in catalytic converters and have been on a steep rise since last year.
Russian exports are mainly going to Asia. However, the conflict may also create additional shortages of iron ore, nickel and materials used in the oilfield equipment.