Oil prices take center stage as global demand rises
Global commercial crude balances have tightened, driven by lower supply from the United States and OPEC and demand growth driven by the reopening of Asian economies.
The IEA and the OPEC Secretariat see looser balances on weaker demand. In contrast, the EIA predicts a tighter market in 2022 after revising non-OPEC supply downwards and expecting a buildup in inventories in the first half of this year.
All agencies revised down global demand growth in 2022, with Asia leading the way. The IEA and EIA see lower demand due to COVID-19 restrictions in China, while both the EIA and the Secretariat have reduced US demand.
Demand affected in China will be slower as the COVID-19 pandemic returns to China. Infections rose in March, mostly concentrated in Shanghai, accounting for more than 70% of cases nationwide, but then fell in April and early May. Chinese demand is slowly recovering, while demand in the rest of Asia is returning as economies increasingly remove restrictions.
Demand for the second half of 2022 will decline, mainly due to the negative impact on demand from the strict COVID-19 restrictions underway in China.
Imports of raw materials from China’s independent refining sector fell in April to their lowest level in more than two years as the prolonged lockdown in major cities capped fuel demand and production.
Its crude imports rose in April, averaging 10.5 million barrels a day, although weaker fuel demand due to coronavirus shutdowns dampened throughput at Chinese refineries.
According to OPEC’s recent outlook, global oil demand growth in 2022 is expected to increase by 3.4 million bpd. Non-OPEC supply growth for 2022 has been revised down by 0.3 million barrels to 2.4 million bpd.
According to some industry sources, Russia’s crude production is expected to fall by 0.9 million bpd to 9.14 million bpd in April, and production is expected to fall further as the EU prepares to impose a embargo on crude oil imports from Russia. By August, Russian production is expected to fall by 2.8 million bpd.
Refining margins continued to increase in all major trading hubs. This improvement in the refining economy was mainly attributed to the recovery in global mobility, lower production of refined products in the United States, strong gasoline exports in Europe and outages related to meteorological conditions in Asia in a context of a tightening of the balance of products, with the exception of naphtha.
In addition, jet fuel refining profit margins in Europe have skyrocketed in recent weeks, driven by strong seasonal demand, combined with low inventories and a lack of local supply.
Geopolitical developments in Europe, oil supply concerns and upward pressure from tight commodity markets were offset by concerns over the growth of the global economy and oil demand in a falling stock markets and soaring inflation.
Crude oil futures prices remained broadly stable. However, due to growing concerns about an economic slowdown and declining outlook for global oil demand, the market selloff amid news of potential softer European Union sanctions on Russian oil has been offset. by the continued decline in product inventories, according to weekly data from the EIA.
Additionally, continued COVID19-related lockdowns in China, US Federal Reserve monetary policy tightening and US dollar strength weighed on market sentiment.
In the short term, as zero-COVID-19 continues in China, transportation fuels are expected to be affected. In addition to mobility and trucking, the port of Shanghai has curtailed its activities, with almost a third of goods being blocked due to the strict lockdown.
These delays are expected to exacerbate supply chain bottlenecks, which continue to further weigh on Chinese and global oil demand. Additionally, ongoing lockdown measures in vital Chinese cities are expected to further dampen the country’s oil demand in the coming weeks.
However, crude imports could improve slightly in May if COVID-19 restrictions are eased, with some refiners keen to buy Russian shipments at heavily discounted prices.
Additionally, the recent historic interest rate hike by the U.S. Federal Reserve could further dampen investment in the U.S. oil sector as the cost of capital and equipment becomes ever higher amid inflationary pressures. .
Additionally, low U.S. oil inventories, particularly gasoline inventories at the start of the driving season, will keep upward pressure on U.S. gasoline prices over the coming month.
According to industry reports, oil companies around the world have tried to increase production, but are struggling to balance the increases without reducing shareholder returns.
Reliance Industries in India recorded robust growth in petroleum product sales and refinery utilization rates in the first quarter of 2022 as the opening up of economies helped drive demand recovery.
• Mohammed Al-Shatti is a Kuwaiti oil analyst.
Disclaimer: The opinions expressed by the authors in this section are their own and do not necessarily reflect the views of Arab News