Oil price contagion
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ANS off $8.58 for the week as bank runs panic US and EU financial markets
Global financial assets continued a wild ride March 15, finishing lower as Credit Suisse joined Silicon Valley Bank and Signature Bank on the list of wobbly banks with liquidity issues which have put investors into a panic.
Oil was not excluded from the sell off; major benchmarks tumbled to levels not seen for more than a year.
Alaska North Slope crude plunged $3.55 March 15 to close at $71.70, while West Texas Intermediate plummeted $3.72 to close at $67.61 and Brent plummeted $3.76 to close at $73.69.
The nosedive followed sharp losses March 14, which saw ANS sink $3.10 to close at $75.25, as WTI sank $3.47 to close at $$71.33 and Brent shed $3.32 to close at $77.45.
On March 13 ANS slumped $1.92 to close at $78.35, WTI fell $1.88 to close at $74.80 and Brent shed $2.01 to close at $80.77.
From Wednesday to Wednesday, ANS collapsed $8.58 from its March 8 close of $80.28 to $71.70 March 15, making a significant breakdown from a trading pattern established in late 2022 that saw the Alaska benchmark trading plus or minus several dollars of the $80 level.
With the crisis of confidence now infecting the United States and Europe, oil traders fear descent into a sustained economic downturn that would pummel demand for oil and gas. Oil and gas related equities moved sharply lower on both continents.
A U.S. inventory build added additional gloom to the oil trading scenario.
U.S. commercial crude oil inventories for the week ending March 10 expanded by 1.6 million barrels from the previous week to 480.1 million barrels, 7% above the five-year average for the time of year, the U.S. Energy information Administration said in its March 15 report.
Analysts in a Reuters poll had expected a 1.2 million barrel rise.
Total motor gasoline inventories fell however, down 2.1 million barrels for the period, 3% below the five-year average for the time of year, the EIA said. Distillate fuel inventories decreased as well, down 2.5 million barrels to 8% below the five-year average for the time of year.
The U.S. dollar gained ground against a basket of currencies, with the bearish result of making it more expensive for holders of those currencies to buy crude.
Trading for the week ending March 10 was more typical of the trend year-to-date.
ANS rose $1.17 March 10 to close at $80.27, as WTI rose 96 cents to close at $76.68 and Brent rose $1.19 to close at $82.78.
On March 9, ANS fell $1.18 to close at $79.10, while WTI fell 94 cents to close at $75.72 and Brent fell $1.07 to close at $81.59.
OPEC: China demand outlook raisedThe Organization of the Petroleum Exporting Countries has revised higher its 2023 oil demand forecast for China, with jet/kerosene and gasoline leading demand growth, it said in its Monthly Oil Market Report released March 14.
In 1Q 2023, China oil demand is set to see year-over-year growth of 0.5 million barrels per day, OPEC said. In 2Q 2023, oil demand is expected to increase year-over-year by 1.0 million bpd.
“China’s reopening, following the lifting of the strict zero-COVID-19 policy, will add considerable momentum to global economic growth,” OPEC said.
An even stronger-than-anticipated rebound in China is a possibility, it said.
Domestic and international airline activity is expected to rise with increasing international business and tourism following removal of quarantines for international travelers arriving in China, OPEC said. Gasoline demand will improve significantly, driven by a strong rebound in mobility.
China’s petrochemical industry is operating near full capacity of 99% in January, it said.
Two new refineries - PetroChina's Guangdong Petrochemical and Jiangsu Shenghong Petrochemical - are expected to enter commercial operation in coming months boosting feedstock demand for light distillates, OPEC said.
Economic stimulus, along with infrastructure expansion in 2023, will spark a robust diesel consumption recovery, it said.
China’s rebound is supported by a recently announced government targeted growth rate of 5%, among other economic measures, OPEC said, adding that a significant lift will come from the services sectors with a recovery in contact-intensive areas of the economy, including leisure, travel and tourism, and hospitality.
Contribution from exports will be an important factor, but exports are being impacted by a global slowdown, especially in the two important trading partner economies of the U.S. and the Euro-zone, it said. “Political tensions and trade-related issues seem to be on the rise with increasing trade barriers from G7 economies towards China,” OPEC said, adding that exports are expected to continue contracting in the first half of 2023 after a decline in fourth quarter 2022, but are forecast to pick up from the second half of 2023 onwards.
Growth in China’s crude demand is potentially bullish for the pricing of ANS crude. Traditionally, rising crude oil purchases from Asia have diverted Pacific cargoes away from U.S. West Coast markets where the majority of North Slope oil is sold, resulting in a boost for ANS prices.
Recently, due to Western sanctions and price caps on Russian oil put in place as a result of Russia’s invasion of Ukraine, China and India have snapped up supplies of cheaper crude from Russia, but Russia’s ability to supply China’s growing appetite for oil is uncertain.