The oil price rally has been slowed by slowing Chinese economic data even as the market is seeing record global demand and the growing risk of new sanctions on Russia and Iran and a force majeure on oil in Libya. This comes as Russian President Putin is suggesting the West is crossing some red lines.
Reuters is reporting that, “Russian President Vladimir Putin on Monday accused the West of pushing Russia to its “red lines” – situations it has publicly made clear it will not tolerate – and said Moscow had been forced to respond. Putin told a meeting of defense officials that Russia was watching the U.S. development and potential deployment of short and medium-range missiles with concern. He said Russia would lift all of its own voluntary restrictions on the deployment of its own missiles if the U.S. went ahead and deployed such missiles according to Reuters.
Oil dropped after China’s National Bureau of Statistics reported that retail sales growth in China came in weaker than unexpected in November, rising 3% a year, a sharp drop from October’s 4.8% gain. We did see an ok reading on industrial production, which was up 5.4% in November.
The news slowed down the oils’ progress after Friday closing above the 20-day and 50-day moving average and closing just short of the 100-day moving average which comes today at 7140. So, the market will start focusing very carefully on what type of stimulus package that China is going to offer to the market. The sense is that if China does not come out with a major stimulus package the market might falter.
Bloomberg reported that China will cut interest rates and the reserve requirement ratio in a timely manner next year, the 21st Century Business Herald reported, citing Wang Xin, director of the research bureau under the People’s Bank of China.
Still there is a global oil supply deficit, at least if you believe the data provided by the International Energy Agency and if you look at falling global oil inventories.
Also, more sanctions on oil could further restrict supply. Reuters reports that the European Union has adopted a 15th package of sanctions against Russia over its invasion of Ukraine, including tougher measures against Chinese entities and more vessels from Moscow’s so-called shadow fleet, the EU Commission said in a statement on Monday. The new sanctions package adds 52 vessels from the shadow fleet that try to circumvent Western restrictions to move oil, arms and grains. It brings the total listed to 79.
This comes after the United States has imposed sanctions on 35 entities and vessels that have transported Iranian oil. The Iranian regime uses oil revenues to fund its nuclear program, missile and UAV development, support for terrorist proxies and partners, and to perpetuate conflict throughout the Middle East.
BNE reports that, “Iran’s oil exports to China have dropped to a record low in two years, a senior analyst at consultancy HedgePoint said on December 15, indicating that recent US sanctions to crack down on Iranian crude were delivering. Kim Benni, the head of trading at HedgePoint Global Markets, shared a chart on his X account showing that Iranian oil exports to China fell below 600,000 barrels per day (bpd) in November, noting that Iranian net sales “are starting to fade.”
This is the lowest volume since December 2022, according to the chart. In contrast, the chart shows that Iran’s exports to China, which typically account for more than 90% of Iranian seaborne sales, were around 1.8mn bpd in September and 1.3mn bpd in October.
Kemp Energy reported that China’s crude oil imports totaled 505 million tonnes in the first eleven months of the year down from 516 million tonnes in the same period in 2023 as widespread deployment of electric cars and gas-powered trucks has cut domestic gasoline and diesel consumption.
Libya’s NOC declared a force majeure on oil exports. Reuters reported, “Fires that broke out in a number of reservoirs in Libya’s Zawiya refinery have been brought under control, Khaled Abulgasem Gulam, spokesperson for the country’s National Oil Corporation (NOC), said in a statement on Sunday. Zawiya, 40 km (25 miles) west of the capital Tripoli, is home to Libya’s biggest functioning refinery, with a capacity of 120,000 barrels per day. The refinery is connected to the country’s 300,000 bpd Sharara oilfield.
Despite the concerns about Chinese demand, we think oil is poised to recover here in the next couple of days. Keep an eye on the 100-day moving average a close above that area could catapult the market back up to the high 70s very quickly.
Natural gas is pulling back along with the temperatures. The markets seem to be focused on the short term warm up and disagreements about the weather outlook for January is keeping the market under pressure. This morning there’s also signs that natural gas producers have responded to stronger than expected demand by raising production. That could ease inventory draws if that continues.