OfBusiness Petroleum Dailies | 26th October 2023

Price

• Oil prices were little changed on Thursday as the market weighed mixed drivers, eyeing tensions in the Middle East while digesting a rise in U.S. crude stockpiles.
• Brent crude futures dipped 3 cents to $90.10 a barrel at 0100 GMT, while U.S. West Texas Intermediate crude futures eased 3 cents to $85.36 a barrel.

Demand and Supply

• U.S. crude inventories climbed by 1.4 million barrels in the latest week to 421.1 million barrels, according to the Energy Information Administration, exceeding a 240,000-barrel gain expected by analysts from a Reuters poll.
• Refinery crude runs in the U.S. fell by 207,000 barrels per day, while refinery utilization rates also edged lower by 0.5 percentage points to 85.6% of total capacity, showed EIA data.
• Meanwhile, macroeconomic concerns continued to weigh on the outlook for oil demand, as eurozone business activity data took a surprise downturn this month.
• Crude demand could get a boost in China, the world’s biggest oil importer, which approved a bill to issue 1 trillion yuan ($137 billion) in sovereign bonds and allow local governments to issue new debt from their 2024 quota to boost the economy.
• Yet Beijing also took steps that could limit crude demand, such as putting a ceiling for its oil refining capacity at 1 billion metric tons by 2025 to streamline its vast oil processing sector and curb carbon emissions.
• About 3.53 million barrels a day of crude was shipped from Russian ports in the week to Oct. 22, an increase of 20,000 barrels a day from the previous seven days, tanker-tracking data monitored by Bloomberg show. That lifted the less volatile four-week average to 3.5 million barrels a day, the highest since June, and up by about 610,000 barrels a day in the past two months.

News

• Refinery crude runs in the U.S. fell by 207,000 barrels per day, while refinery utilization rates also edged lower by 0.5 percentage points to 85.6% of total capacity, showed EIA data.
• Investors are expected to continue keeping tabs on developments in the Middle East, amid fears that any escalation would roil oil markets and disrupt supplies.
• The benchmark oil contracts settled nearly 2% higher on Wednesday, buoyed by persisting worries about the Middle East conflict.
• Record domestic production and imports, and an increasing contribution from renewables, have put the country in a much better place to weather rising consumption during the peak demand period for heating. Persistently strong coal inventories and recovery in hydropower generation have helped eliminate the key factors behind last year’s crippling surge in prices.
• An ample supply of China’s mainstay fuel is good news for the industry as the economy improves after months of poor performance. Electricity generators are also benefiting from weaker prices. Huaneng Power International Co., China’s second-largest supplier, reversed last year’s loss to post its best-ever third-quarter profit as margins improved, according to its earnings report this week. By contrast, coal mining profits are declining.
• Power plants have now largely completed replenishing stockpiles ahead of winter and benchmark prices have dropped below 1,000 yuan a ton, according to the China Coal Transport and Distribution Association. The downtrend could last for another month.

OFB’s Opinion

• It is expected that markets will continue to display volatility due to the fluctuating tensions in the Middle East. However, the underlying fundamentals are anticipated to be seasonally weaker than projected, mainly influenced by the unexpectedly subdued product demand in the U.S. The unclear price direction on Thursday reflects investor deliberations on the increased U.S. crude inventories, signaling a weakened drawdown and demand.