US equities moved sideways overnight, likely a much need hiatus after the record close the day prior. The most notable price action was a further extension in oil prices that rose 1.8%
Oil traded higher on Wednesday in a very tight range until the rally midday in New York. WTI attempted a clean push through $46, and Brent printed through $49 before retracing some.
The inventory numbers released earlier in the NY session helped push the market higher, with the EIA figures more bullish than the previous days’ API estimates and bullish to consensus.
Asia’s unquenching demand remains for all to see. Chinese and Indian buying interest continues with tenders issued for both spot and term cargoes, directly responsible for increased demand and reflected in the Brent curve, which has moved to a mild backwardation this week.
The colossal moves in crude prices over the past 48 hours echo optimism amid positive vaccine development. The flattening of the curve suggests that a positive surprise on current demand is also being reflected.
Rising demand from China and India
With all signs building towards a medium-term state of normalisation, Asia refineries are backing the oil trucks up at the port to get them(barrels) when the going is good (low price) type of demand.
China’s Rongsheng is seeking oil for its expanding storage facilities. Last week it purchased about 4 million barrels from Abu Dhabi and Iraq.
Meanwhile, according to a Bloomberg report, the largest Indian refiner, Indian Oil Corp, is looking for cargoes from the Middle East and West Africa for December and January. Earlier in the month, Chinese and Korean buyers found themselves outbidding each other after sellers cut allocations.
Since early March, oil is at its highest level with vaccine-driven optimism and signs that an orderly transition of power in the US is underway, helping the demand outlook. Positive comments on the state of the Chinese economy by Premier Li are also supportive.
Eyes on the OPEC meeting
OPEC holds its 180th Meeting of the Conference on 30-Nov and 12th OPEC and non-OPEC Ministerial Meeting on Dec. 1.
Market expectation is that the current production quotas due to rise by 2Mbd on 1 Jan-21 will be retained, likely for another three months.
Indeed, this should be sufficient to bridge a challenging northern hemisphere winter from a Covid-19 perspective to potential improvements in economic activity and mobility coming with the rollout of vaccines.
It seems logical that this will be the production club’s final effort to protect oil markets from a collective perspective. Internal tensions and domestic pressures have been emerging both from expected sources such as Iraq and Nigeria. From previously core members such as UAE – unsurprising given the combination of low oil price and production volumes, Saudi and Russia have strongarmed discipline and consensus.
Still, something more delicately diplomatic may be needed to assuage members’ concerns to present a unified message to the market, especially as the organisation faces longer-term existential questions in the context of the transition from fossil fuels to green energy.
Oil market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi