2023-04-03 • Updated
In March Brent crude oil has once again nosedived below $80, levelling all the systematic price growth from December 2022 to March 2023 in one fell swoop.
There are no fundamental reasons severe enough for such a substantial drop in prices. However, fears of a possible recession in the financial sector, which could spill over to other economic sectors and lead to a global slowdown, push energy prices down.
Where is the promised expansion of China’s economy? This article attempts to answer the question.
According to the latest IEA report, oil supply has increased only slightly. OPEC+ added about 170,000 bpd.
As a result oil supply has jumped to 830,000 bpd, mainly thanks to the US and Canada. IEA expectations for oil production this year remain optimistic at +1.6M bpd.
US commercial crude oil inventories have risen to 480.1 mb. The Strategic Petroleum Reserve hasn't changed and remains at 371.6 mb.
The US has been draining its storage facilities for 1.5 years - from June 2020, till December 2022. With the cold winter, energy shortages, and the acute period of overcoming dependence on Russian oil and gas over, the realization that the US will not be left with no oil at all has ushered the market into a new phase.
At the beginning of April, some OPEC+ countries decided to cut oil production by approximately 1.5M bpd. Russia and Saudi Arabia accounted for the most significant reductions by 500K bpd each.
The OPEC was in no hurry to enter a market with supply restrictions. Now mostly, Saudi Arabia gave a signal to the future interference. For OPEC, the most comfortable price is around $90-$100. So, in the worst-case scenario, if prices do not stabilize, OPEC will enter the arena once more.
In reaction to the OPEC+ decision, the price instantly jumped to $85 and broke several resistance levels, including the cluster between $80 and $80.50 and then $83.
For a short-term trader, it’s clear that the price may soon close this gap, but from the fundamental point of view, we may face a bullish reversal.
Image 1. XRBUSD. Daily time frame.
Everything has its price. The growth in oil prices may lead to the following consequences:
Judging by the external macroeconomic backdrop, China's economy is starting to pick up gradually:
The Energy Information Administration expects China's oil demand to grow by 730,000 b/d this year.
However, concerns have been raised that China continues to actively build up its oil reserves, importing mostly Russian grades at a reasonably high discount - imports from Russia to China amount to about 1.94M bpd.
Consequently, most analysts still prefer to lower the average oil price in 2023.
Image 2. Brent oil price forecast before the OPEC+cut
The price value in March should be considered only a market reaction to an unexpectedly surfaced black swan in the form of a bank collapse - a sort of energy market RISK-OFF.
The probability of growth resumption and price stabilization at $80-90 is relatively high. But, given the fullness of Chinese storage facilities, the prospect of reaching $100 per barrel remains murky.
China has issued new oil product export quotas to allow oil companies to send surplus barrels overseas, particularly Sinopec, which has the highest volume among quota holders. While the exact quota volume remains undisclosed, oil companies are forecasted to export approximately 3.5 million metric tons of clean oil products in September, a 10% increase from August.
Thanks to the incredible advancements in horizontal drilling and fracking technology, the United States has experienced a mind-blowing shale revolution. They've become the heavyweight champion of crude oil production, leaving Saudi Arabia and Russia in the dust. They even turned the tables and became net exporters of refined petroleum products in 2011.
Oil prices rebounded slightly on Friday but are still expected to show losses for the week due to concerns about slowing growth in the US and China. US crude futures rose 2.7% to $70.41 per barrel, while the Brent contract increased by 2.5% to $74.33 per barrel.
The EUR/USD pair is making gains, approaching multi-month highs around 1.0960, driven by a weakened USD and Christine Lagarde's somewhat hawkish remarks before the European Parliament. Minor housing data from the U.S., specifically New Home Sales for October, came in below expectations but didn't significantly impact the pair. Lagarde, President of the...
Global equities on Wall Street experienced a mixed session following the Thanksgiving holiday, heading for the most significant one-month rally since November 2020. MSCI's global shares index slightly eased but was still on track for an 8.5% monthly gain, fueled by growing investor confidence that U.S. interest rates...
Brent crude futures is maintaining stability this Friday, with traders awaiting an OPEC+ meeting that might lead to further supply cuts. Brent crude was down 8 cents at $81.34 a barrel, following a 0.7% drop in the previous session.
FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.
Your request is accepted.
A manager will call you shortly.
Next callback request for this phone number
will be available in
If you have an urgent issue please contact us via
Live chat
Internal error. Please try again later
Don’t waste your time – keep track of how NFP affects the US dollar and profit!
|
