Eagle, Bear, Dragon & Crude Demand.. What gives?..
February 2023? As was mentioned in this week’s IIR Market Scorecard it ‘tis all about Demand – at this moment in time – for the Crude & Products market.?
Now one wonders as to whether in fact this Demand will show up in the form of the Dragon(China) consuming hydrocarbons.? As reports have surfaced that there is expectation for more crude imports into China.?
China is expected to import a record amount of crude oil in 2023 due to increased demand for fuel as people travel more following the dismantling of COVID-19 controls and as a result of new refineries coming onstream, analysts said.
The prospect of strong demand from the world's biggest importer will be another bullish factor for an oil market already supported by the OPEC+ producer group's output cuts and western sanctions on Russian exports.
Which is seemingly good news in regards to China opening back up and the expected subsequent growth of their economy – the world’s second largest – to drive hydrocarbon demand.? However, other reported news is hinting that this “..expected growth & recovery..” is not faring that well – especially at the consumer spending level.
…After three years of rolling lockdowns, including a particularly tough one in Shanghai last spring, China is confronting its worst economic indicators in decades. The country’s GDP last year grew just 3 percent, a stark departure from growth of over 8 percent in 2021 — and its lowest level since 1976, the year that Mao Zedong’s disastrous Cultural Revolution ended.
Experts inside and outside of China say that its $6 trillion consumer market will be central to getting the world’s second-biggest economy back on track, not least because global demand for China’s products remains sluggish.
But the pent-up wave of consumer spending that experts predicted would follow the policy’s end has yet to take shape.
However, consumers in the world’s first largest economy – that being the Eagle(US) – are still spending.? Well at least on dining out.
…Americans are spending more money to dine out than they are on groceries.
Consumers spent more than $86.6 billion at restaurants in the month of January, up 24% compared to the same month in 2022, per the latest data from the U.S. Census Bureau. Spending on groceries, beer, wine, and liquor was up 5.3%, totaling about $78.9 billion last month.
This comes as the cost of food away from home outpaced the cost of buying groceries. Per the Bureau of Labor Statistics' (BLS) January Consumer Price Index (CPI), the cost of groceries was up 11.8% year-over-year, while dining away from home was up 8.2%.
Despite menu price increases to offset inflation at many restaurants and fast food chains, customers seem to be turning a blind eye to rising prices after being cooped up during COVID.
And the Eagle’s economy itself? is still growing strong.? Which normally would be good news as a strong economy drives demand.? However, in this case the Fed has been trying to wrestle with high (..nearly hyper..) inflation; so it was hoping to see less economic growth in this New Year as their policy of raising rates through December took effect.? Now there is chatter they will be raising rates again – maybe as high as “..half a basis point.”
US Economic Data and the Road Ahead: Higher for Longer?
Last crucial US economic data releases were singing the same song—higher for longer. Sizzling core readings in the CPI and PPI crushed hopes for a tidy melt in inflation. A ferocious recovery in January retail sales sequestered thoughts of a meaningful economic cooldown.
Dreams of an imminent end to Fed rate hikes were lost in the haze of hawkish Fedspeak after Presidents Mester and Bullard implied that a 50bp hike could be on the table for the March Fed meeting.
All of this in context of the news coming out of Eastern Europe with the war in Ukraine as the Bear(Russia) and Dragon(China) look to wrestle control from the Eagle(US) in regards to world order.
Biden’s Kyiv visit, Putin’s speech show two sides digging in for long fight in Ukraine as China also weighs in
A series of high-profile events on the international stage has laid bare the perilous state of great-power relations as Russia and China challenge the U.S.-led global order and raised the prospect that they could deteriorate further.
Russian President Vladimir Putin said Tuesday that Russia would suspend its participation in the last remaining nuclear-arms treaty between Moscow and Washington, a vestige of the security architecture that has helped keep the peace for decades.
With strains worse than at any time since the Cold War, Mr. Putin’s threat to arms control in a speech in Moscow came a day after President Biden traveled to Ukraine and vowed “unending support” for Kyiv in a fight Mr. Putin considers an existential one for Russia.
Also in the mix: China, whose top diplomat, Wang Yi excoriated the U.S. at a security conference in Germany before arriving Tuesday in Moscow to see Russian officials and, people familiar with the matter said, likely propose a summit between Mr. Putin and China’s Xi Jinping.
For the energy world is still striving to make sense of whether sanctions on Russia are actually working in regards to funding its “..military special operation in Ukraine..”.? As Russia announced they could be pulling 500,000 barrels – or more – from the market to drive up price.
Russia plans to cut oil exports from its western ports by up to 25% in March versus February, exceeding its announced production cuts in a bid to lift prices for its oil, three sources in the Russian oil market said.
Russia's Energy ministry declined to comment. Russia's pipeline monopoly Transneft did not immediately respond to a Reuters request for comment.
Russia had already announced plans to cut its oil production by 500,000 barrels per day in March, amounting to 5% of its output or 0.5% of global production.
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Although, this "..pulling of Russian supply to drive price.." is occurring at a time when Nigeria has been increasing their supply – roughly 300,000 –? since Q4’2022.
It further dimmed to 937,766 bpd in September. In October, 1.014,485mbpd; Nov, 1.186mbpd; and December, 1.235mbpd.
Babalola said: “I am happy that Nigeria’s crude production is rising above one million bpd. It should get better by the day because we are losing so much money with Nigeria not meeting its quota by the OPEC.
Though Russian supply cuts could in fact be taking place – it still appears that the Russian economy has not been as impacted as Western nation states had hoped.
In a statement, EU leaders described "massive and severe consequences" for Russia. Economists predicted a huge plunge in GDP. Weeks after the sanctions were brought in, the White House said in a statement: "Experts predict Russia's GDP will contract up to 15 percent this year, wiping out the last fifteen years of economic gains."
It hasn't happened. While the past 12 months have been very challenging for the Russian economy, it has performed far better than expected.
Getting a clear picture is ultimately impossible. The Kremlin made a lot of key economic data classified after it launched the war on Ukraine and it remains so today. The underlying shape of the economy is uncertain. However, it's already obvious that the collapse many predicted has not materialized.
"I think we can say that the economy shrank a lot less than the 10 to 15% that people were talking about at the beginning of the war," Alexandra Vacroux, executive director of the Davis Center for Russian and Eurasian Studies at Harvard University, told DW.
Maybe the recent – on Feb 5th –? sanctions taking place on Russian refined products will have the desired effect on the Russian economy.? Nonetheless these sanctions could be lifting "..diesel pricing.." -- likely impacting the US & European consumer in time.
The benchmark price for most diesel fuel surcharges fell Tuesday even as diesel futures took an upward move completely at odds with the rest of the petroleum market, possibly signaling that sanctions against Russian diesel are having an impact.
The Department of Energy/Energy Information Administration price, published a day later than usual due to the Presidents Day holiday, dropped 6.8 cents per gallon Tuesday to $4.376. It’s the lowest price since the $4.104 posted almost exactly a year ago, the final rate published by DOE/EIA on Feb. 28, 2022, that would not have felt the full impact from Russia’s invasion of Ukraine just a few days earlier.
Tuesday’s DOE/EIA price came even as diesel futures on the CME commodity exchange took a sharp move higher Monday despite declines in the settlement price of other futures contracts in the petroleum complex.?
As Europe could be looking to the US to supply diesel to replace what was coming from Russia (..as was done last year in regards to natty in the form of LNG..).? This and other factors will keep the US Refinery Utilization rates high for this year & next.
Researched by Industrial Info Resources (Sugar Land, Texas)--U.S. refinery utilization will remain at above 90% over the next two years…???
"We also forecast that increased production of finished petroleum products as a result of high refinery utilization rates will contribute to lower prices," the EIA continued. "The ban on imports of refined petroleum products from Russia into the EU, which began earlier this month, poses a risk of additional disruptions and brings significant uncertainty to our forecast."
For 2023 and 2024, Industrial Info is tracking nearly $3.2 billion worth of refinery turnaround kickoffs in the U.S…? with some of the more substantial turnarounds planned this year include those at:
Delta Airlines Incorporated's (Atlanta, Georgia) 185,000-barrel-per-day (BBL/d) Trainer Refinery in Trainer Pennsylvania. The turnaround is planned for third-quarter 2023.?
Phillips 66's (NYSE:PSX) (Houston, Texas) 260,000-BBL/d Lake Charles Refinery in Westlake, Louisiana, planned for third-quarter 2023.?
Phillips 66's Bayway Refinery first-quarter 2023 Fluid Catalytic Converter Unit (FCCU) and Sulfuric Alkylation (SF Alky) Unit in Linden, New Jersey.
Utilization Rates are also high because the US has shuttered & closed roughly ~2mm barrels of refining capacity since 2018.? And, though there are “..projects on the books.." to increase US Refining capacity there is a low probability – according to IIR – this will actually happen.
Nearly 1mn b/d of new US refining capacity is under construction or planned for investment in the coming years, but many of those projects are unlikely to be completed on time or at all.
…"IIR Energy has all of these at low probability right now and they will not be increasing probability until they [the refineries] reach final investment decision," IIR energy market correspondent Hillary Stevenson said at the Argus Americas Crude Summit in Houston, Texas (..last week..)
Therefore the question remains will Demand show up on the energy market horizon to drive oil prices back up or are the "..many other factors.." – especially economic –? at play enough to temper price..? Possibly continuing to exert downward pressure..
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