This week, U.S. crude oil rose again after falling sharply by more than 10% last week, with rising by about 4.1%, and Brent Oil also rose by about 4%. Signs of a strong recovery in demand in China are revealed, and demand expectations made by OPEC and IEA have also boosted market confidence. However, interest rate hikes by many central banks around the world have triggered expectations of recession, which has negatively impacted the outlook for oil demand.
As of press time, NYMEX crude oil futures rose 4.05% to $74.36 per barrel; ICE Brent crude oil futures rose 3.91% to $79.82 per barrel.
Supply side
1. U.S. crude oil and refined oil inventories both increased last week, and demand concerns rose
The U.S. Energy Information Administration (EIA) reported that crude oil inventories increased by 10.231 million barrels in the week ended December 9. In its report, the EIA noted that U.S. crude oil inventories were 424.1 million barrels, 6% below the seasonal average over the past five years.
Regarding refined oils, EIA reports an overall increase in inventory. In the week ended December 9, gasoline stocks increased by 4.496 million barrels, with an average daily production of 9.2 million barrels in the week, while inventories increased by 5.32 million barrels in the previous week, with a daily production of 9.1 million barrels. In the week ended December 9, refined oil inventories increased by 1.364 million barrels to an average daily output of 5.2 million barrels; while inventories increased by 6.159 million barrels to an average daily output of 5.3 million barrels.
2, EU embargo and price limit have not affected the supply
. Since there is a 45-day transition period, both EU G7 and Russia hope to make a smooth transition, seize the time to trade during the period, and prepare for the real arrival of sanctions. Russia has not yet taken substantial production cuts, so it has not affected oil supply yet.
demand side
1, OPEC and IEA both predict global demand growth next year
This week OPEC released its highly-watched monthly oil market report (MOMR). The report expects global oil demand to grow by 2.5 million barrels per day this year, an average of 99.6 million barrels per day, and 2.25 million barrels per day next year, an average of 101.8 million barrels per day. China, the world's largest oil importer, may rise next year; and the International Energy Agency (IEA) predicts that China's oil demand will recover next year after shrinking by 400,000 barrels per day in 2022, and raises the forecast for global oil demand growth in 2023 to 1.7 million barrels per day, totaling 101.6 million barrels per day. Both OPEC and IEA predict that demand will increase next year, and both mentioned China's oil demand to varying degrees, which shows the influence of China's demand in the international oil market.
2. Signs of a strong recovery in China's demand has shown
As China completely relaxes epidemic restrictions, the market has shown signs of a recovery in demand. Data shows that China's road and air traffic have rebounded sharply. As New Year's Day and Spring Festival approach, tourism institutions have received a large number of orders in advance, and tourism demand has begun to explode, triggering a surge in air travel. The demand for aviation fuel is rising. China's domestic tourism industry is just around the corner. It is expected that crude oil and refined oil imports will return to normal in the next few months.
It should be noted that with China's reopening, the number of infections in various places is also increasing, which makes people's behavior cautious. This situation clearly shows that China's full openness will not happen overnight, but optimistically estimates it will bring a de facto significant boost in demand next quarter. While this will definitely happen, the market still needs to wait patiently, so any premature optimistic expectations are now slightly suppressed, affecting the current oil prices.
3, Fed rate hike , and BCB followed up with rate hike , and brought negative impacts
The Fed rate hike this week was 50 basis points, down from the 75 basis points increase in interest rates at the previous four policy meetings. Feder Chairman Powell said that the Fed will raise interest rates further next year, despite the economy likely to slide into recession. The Federal Reserve's hawkish guidance on its monetary policy has once again raised concerns about the U.S. economy sliding towards a recession. Even a moderate recession will have a negative impact on oil demand. At the same time, for countries using other currencies, a stronger dollar will make oil more expensive, thereby curbing demand. After the Fed's interest rate hike, the Bank of England and European Central Bank followed up with interest rate hikes, putting pressure on European economic growth expectations and brought about a gloom in demand.
Summary of this week
Both U.S. crude oil and refined oil inventories this week have increased, bringing concerns about demand; the successive interest rate hikes of the Federal Reserve, the Bank of England and the European Central Bank have had a negative impact on the economy, which in turn has affected demand. However, China's reopening is a strong bullish demand factor. Signs of a strong recovery in demand in China have been revealed in the aviation industry first, and market expectations have been greatly boosted, overshadowing the above two major unfavorable factors. Although it will take some time for full opening, it is already on the way. In addition, oil traders are currently reluctant to buy crude oil, and large traders continue to be net sellers. They seem too afraid of the upcoming recession to be buyers. This attitude has also dragged down the rise in oil prices.
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