Weak macro sentiment continues to dominate price movements with the Covid-19 situation in China, followed by the increasing protests against the curbs leading to further clouds on the demand outlook.
The protests by Chinese citizens against the strict curbs is likely to add further pressure on the government, already facing a slowing economy and weaker manufacturing output.
With European refiners stocking oil ahead of the December 05 deadline to stop imports of Russian seaborne crude oil and the G7 price cap implementation, near term demand seems saturated.
A combination of all these factors pushed down the benchmarks sharply, with Brent and WTI falling more than 4.5% last week, with the weakness continuing into Monday morning when the benchmarks were down nearly $2/bbl.
The other area of concern has been the central bank action in several countries with the banks having to combat high levels of inflation, largely caused by the surge in energy prices post the start of the conflict.
With several economists saying the inflation could be sticky and last for 15-18 months, the central banks have largely been increasing rates to curb the inflation, slowing down demand growth. Fears of recession and a wave of employee layoffs at Big Tech workplaces also raise concerns that other companies might follow suit, reducing consumer confidence and increase the bearish outlook.
Time spreads of Dubai crude oil swaps continued to fall last week with the spreads slipping into contango on worries of near-term oversupply in the market. A contango is a market structure where the future prices are higher than the prompt prices, signaling a weakness in the prompt market.
OPEC+ meeting expectations
Statements by the Saudi Energy ministry on Friday helped reassure the market with the statement claiming that the energy ministers of Saudi Arabia and Iraq met on Thursday and agreed on the importance of the OPEC+ cuts.
The statement pushed the time spreads back into backwardation. Iraq's state news agency quoted the country's delegate to the OPEC+ and a senior official at the state oil company SOMO as saying that the December meeting of the group would take into consideration the balance of the markets. The official was also reported to have said that the decision to cut production in October has helped stabilize the markets.
With this backdrop at play, the OPEC+ is set to meet on Dec 4th to deliberate on output policy for Jan 2024 and beyond. Considering the forecasts for the oversupply in the prompt, it is likely that supply cuts could be enforced for the first quarter of 2024 with scope for revision depending on market movement,
MENA oil exports
Weekly crude oil exports from the Middle East and North Africa were lower at 119.7 million bbl and 7.0 million bbl respectively.
Kuwait's newly commissioned Al Zour refinery exported the first jet fuel cargo, shipping a panamax sized vessel to the UAE.
The mega refinery is expected to gradually ramp up production and achieve full capacity in 2023. With no significant additions to oil production capacity in place, the startup of the refinery is likely to reduce the 2023 volumes available for KPC to term up for Asian buyers and buyers would have to seek other alternatives.
(Reporting by Sudharsan Sarathy; editing by Seban Scaria)