Muscat: Crude oil prices showed partial recovery early last week following three consecutive weeks of declines. The gains came as a result of an oversold market that saw prices crashing to $70 per barrel levels, according to a new report.
However, prices once again dropped in the last three trading sessions led by concerns over demand momentum this year leading to a fourth consecutive week of declines, the Kuwait-based Kamco Invest said in its Oil Market Monthly Report-May-2023.
“The temporary gains came after moderating inflation numbers in the US and a growing consensus on a rate hike pause in the coming months. However, rising US unemployment on one hand and low borrowing and flattish inflation in China once again questioned the demand growth expected during the rest of the year,” the report further added.
Supply-side factors supported crude oil prices with disruptions in supplies from Canada due to the wildfires in the Alberta region. A state of emergency was declared in the region that resulted in producers shutting down around 185,000 barrels per day of crude oil supplies, or around 2 percent of the country’s output. This affected supplies of heavy oil sands crude oil from the region.
On the other hand, Iraq’s oil exports from Turkey’s Ceyhan port continued to be halted affecting supplies from the country, although some ports resumed operations, the Kamco Invest report further added.
On the demand side, prices got support after a Reuters report that cited the US energy secretary suggested buying of oil by the US government to refill its strategic oil reserves (SPR) later this year. The purchase is aimed at refilling the decades-low reserve (at 372 million barrels, the lowest since 1983) as well as taking advantage of depressed prices this year. In addition, the forecast of higher seasonal demand in the US also supported prices. The latest Short Term Energy Outlook from the EIA pointed to higher demand coupled with lower-than-expected output, especially from the Opec producers.
Meanwhile, recent data from China outweighed the positives tempering oil demand expectations in the coming months highlighted by an uneven recovery. The latest inflation report from China showed year-on-year prices increase was near zero (+0.1 percent) in April-2023. Data also showed imports seeing a sharp decline in China while exports grew at a slower pace. On the other hand, a report from OilChem showed refiners in China are planning to boost refinery runs to the highest level since the start of 2021. A Bloomberg report that quoted JLC showed that China recently issued its second batch of export quota for oil products for 2023 at 12 million tonnes.
The latest oil production data from Bloomberg showed Opec output declining for the second consecutive month during April-2023. Opec production went below the 29 million barrel per day mark for the first time in 10 months to reach 28.8 million barrels per day during April-2023. The decline was mainly led by a steep fall in output in Iraq, further supported by falling output in Nigeria and the UAE. Saudi and Angola reported marginal increases during the year. Meanwhile, US oil output remained range bound at 12.3 mb/d reflecting a similar trend in oil rig count growth in the US.
Oil prices remained volatile during May-2023 but mostly trended downward since the second half of last month. Brent crude oil futures reached the lowest level since December-2021 on 3 May 2023 at $72.3 per barrel led by fears of slowing demand later this year. However, the market showed a temporary recovery last week as traders pointed to an oversold market along with some positive data points including lower-than-expected inflation in the US.
A higher-than-expected decline in gasoline inventories in the US by 3.2 million barrels during the week ended 4 May 2023 also supported prices highlighting stronger demand for transportation fuels in the US. Distillate inventories also declined, while jet fuel demand rose to the highest level since December-2019. However, crude oil inventories witnessed a steep increase of 2.95 million barrels.
The recent disruption in production in Canada due to the wildfires also affected prices. This also resulted in the Western Canadian Select heavy crude grade reaching the strongest level since April-2022. Prices of other heavy crude grades also gained, especially for Asian and European buyers due to the sanctions on Russia as well as production cuts announced by the Opec+ group. A Bloomberg report showed that Saudi Aramco will sell its usually expensive Arab Extra Light crude grade for less than the Arab Light grade to Asia next month. Disruption of oil flows from Iraq’s Kurdistan also resulted in this price rise for heavy crude grades.
Elevated oil prices during the first half of April-2023 resulted in higher average prices for the month. Opec crude basket averaged at a five-month high level of $84.2 per barrel during April-2023 registering a month-on-month increase of 7.3 percent. The gain in average Brent spot prices was higher at 8.2 percent at an average of $84.8 per barrel while average Kuwait crude grade saw a similar gain of 8.1 percent to reach $85.7 per barrel. In terms of forecast, the latest slide in oil prices resulted in the EIA slashing its forecast for Brent crude by 7 percent for 2023 to $78.65 per barrel from $85.01 per barrel in its earlier forecast. The forecast for 2024 was lowered by 8.3 percent to $74.47 per barrel from $81.21 per barrel in the previous forecast.