Oil prices were seen mixed on Tuesday morning with the economic data for China for 2022 causing bearishness, but the opening up of the borders and expectations of demand recovery are providing the counter bullishness.
Earlier, China's GDP data showed a growth of 3% for 2022, underperforming the official target of 5.5%. Crude oil refining throughput for 2022 was also lower y-o-y. However, considering these data points are for the period before the announcement on removal of the covid 19 restrictions was made, it is likely that demand numbers going forward would recover. It is this optimism that has supported the markets.
As mentioned in last week's report, the opening of the Chinese borders pushed up key benchmark spreads, pushing up the Dubai swaps time-spreads last week. The US inflation data showed the annual consumer price index falling to the lowest in more than a year amidst US Fed tightening. This has also raised market expectations that the Fed could be less hawkish which would support the oil markets.
With the narrowing of the Dubai Brent EFS spread, which is indicative of the arbitrage window to Asia and with the fall in freight rates, Asian refiners have found greater interest in cargoes linked to Brent including West African barrels, reducing the interest seen for Middle Eastern cargoes.
Russian cargoes continue to find home in Asia with China and India importing significant quantities of oil on good discounts, which has increased the competition for Middle Eastern crude in traditional markets.
Acknowledging the significant uncertainties in the markets, UAE's energy minister said the OPEC+ was facing "volatile prospects" in supply and demand. Speaking to a television channel, the minister attributed the same to the European sanctions on Russian oil and the removal of the zero-covid 19 policy by China. The minister also highlighted that the OPEC+ production capacity was down 3.7 million bpd on account of lack of investments. To overcome this challenge, the UAE is accelerating a production target of 5 million bpd that was set for 2030 and bringing it forward to 2027.
China refining sector highlights
Chinese exports of refined products are likely to drop in January as the Lunar New Year has led to strong transportation demand within the country. Post the new year, exports could likely resume at earlier levels which could depress regional refining margins.
China's Panjin Haoye Chemical Co Ltd shut down its refinery after an explosion on Sunday that resulted in casualties. The refinery is reported to have processed around 110,000 bpd in December and it is likely that the refinery may remain shut for months.
MENA crude oil exports
Weekly crude oil exports from the Middle East were higher at 124.1 million bbl while North African exports were seen lower at 9.4 million bbl. Qatar Energy offered a tender for sale of March loading cargoes of Al Shaheen (2x500 kbbl), Qatar Land (500 kbbl) and Qatar Marine grades (500 kbbl).
(Reporting by Sudharsan Sarathy; editing by Seban Scaria firstname.lastname@example.org)