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Oman: Oil prices roared towards the $90 per barrel mark following consistent gains since the fourth week of July-2023, according to a new report.

“The most recent support to prices came from record demand from Asian refiners for US crude deliveries amid obstacles that included high temperatures impeding pipeline deliveries to ports in the US. Reports of continued buying of Saudi crude oil by China also supported prices,” Kamco Invest said in its Oil Market Monthly Report August 2023.

Both WTI and Brent traded in larger backwardation indicating scarce supplies in the near term. Voluntary cuts from Opec+, Saudi Arabia, and Russia have supported oil prices since last month. Nevertheless, an increase in crude stocks in the US as well as a revision to Chinese economic data indicating a slower-than-expected recovery in demand in China and globally partially offset the overall rally.

Data on weekly crude oil inventories in the US showed a record draw-down during the week ended 28 July 2023 by 17 million barrels led by higher refinery runs coupled with increased crude oil exports, especially to Asian buyers. However, the report had minimal impact on prices as it coincided with the downgrade of sovereign ratings for the US by Fitch ratings. In addition, the cancellation of the US government’s plan to buy 6 million barrels of oil for its strategic reserves also affected prices.

Meanwhile, the most recent report on crude oil inventories showed an increase of 5.9 million barrels in the US to reach 445.6 million barrels led by a slump in exports that more than offset higher refinery runs. Higher production and imports also supported the inventories.

On the demand front, China falling into deflation for the first time in two years alerted oil watchers on the prospects of future demand emanating from the world’s second-biggest oil buyer. A recent report from China showed crude oil imports sliding to a six-month low level to the smallest volume since January-2023, according to Bloomberg.

Another report from ESAI Energy said that the impact of a recent typhoon in China has affected mobility and economic activity and as a result, 2H-2023 demand in China is not expected to beat demand during the first half of 2023. On the other hand, a rate pause in India generated hopes of higher demand in the country. The most recent monthly oil demand data from India showed consumption increasing by 1.9 percent year-on-year (y-o-y) to 18.1 million tonnes but a seasonal pattern during the monsoon resulted in a 6.6 percent decline as compared to the previous month.

Meanwhile, supplies tightened even further this month when Saudi Arabia announced that it would extend the ongoing additional cuts of one million barrels per day (mb/d) into September-2023 with an option to cut even deeper and prolong further if needed. This was added by Russia which announced that it would extend its export curb until next month. The cuts are expected to counter the impact of a slowdown in the US due to recessionary pressures as well as the lackluster data coming out of China.

World Oil Demand

World oil demand growth forecast for 2023 was kept unchanged from the last month at 2.4 mb/d in Opec’s latest monthly report with demand expected to reach 102.0 mb/d this year. However, there were adjustments to quarterly data for the year.

According to the report, demand data for the first quarter of 2023 was revised upwards for the OECD America and OECD Europe regions.

This increase was completely offset by downward revisions to data for Europe and Other Asia for Q2-2023. For 2024, world oil demand growth was also left unchanged at 2.2 mb/d with total demand expected to reach 104.3 mb/d.

Near-term forecasts for oil demand in the US showed a continued decline in inflation which is expected to support consumption.

The third quarter 2023 demand in the US is expected to remain strong mainly led by the increased mobility and air travel during the summer holiday season resulting in higher demand for gasoline and jet kerosene.

“However, a slide in manufacturing activity is expected to impact demand for industrial fuels, mainly diesel. The trend is expected to continue during the fourth quarter of 2023 with higher demand for transportation fuels offset by lower demand for industrial fuels,” the Kamco Invest report said. For the OECD Europe region, a similar trend is visible as weak manufacturing activity is expected to continue led by slow economic activity and supply chain bottlenecks during 2H-2023. In terms of products, demand for jet fuel and gasoline is expected to remain positive while diesel and petrochemical feedstock is expected to remain weak.

In the non-OECD region, the recent data from China painted a subdued picture for demand during the rest of the year. The CPI for July-2023 showed a y-o-y decline in China. Trade data showed a steep decline in imports last month while exporters reduced exports resulting in piling domestic inventory. Moreover, the increase in sales of EVs has pulled peak oil demand in China by two years to 2023 from 2025, according to an official from Sinopec. Industry consultant Mysteel OilChem added that demand for diesel and gasoline is unlikely to reach pre-pandemic levels this year as EVs continue to challenge future demand.