Review Of Oil Trading Markets - 2024 - 15th to 19th July

A week where oil prices had looked strong and ready to edge higher suddenly whipped round on the bulls, changed direction, and sent them scrambling for the exit door by close of business on Friday evening.

It’s hard to know exactly what caused the sell off, although a devilish security update by Crowdstrike (an American Cybersecurity technology company based in Austin, Texas which provides cloud workload protection and endpoint security, threat intelligence and cyberattack response services) on behalf of Microsoft causing a Global IT crash may have had some influence on oil futures markets but a bigger price killer was a report suggesting China’s biggest oil refiner sees little growth in demand for it’s products worrying the market in a major way would appear to be the main reason for the sell off, although the timing of the reaction to the publication is somewhat odd given the move was on a Friday afternoon, so caution is advised!

More and more often in oil markets today what is missing from the news filled paint pallet can be more important than the colours we already have and this seems to be the case here.

For example, we have so much bullish news which should push oil prices higher, a war in Europe, another between Israel and Hamas, a dangerous side war between Hezbollah and Israel, Red Sea attacks on Western shipping by Houthi rebels, falling crude oil stocks in America, the OPEC+ alliance controlling crude supply plus other bullish stories and all of this seems to add up to ?just $82.63 cents a barrel, and all because of what China isn’t doing versus what it should be!!?

Let’s take a look at the most recent China story.

OilPrice and others cover this story well and reports the Third Plenum of China’s Central Committee barely saw any tangible pledges, with the lack of constructive takeaways reverberating across commodities.?

China's largest oil refining company, China Petroleum & Chemical Corporation (known in trading circles as Sinopec) reports they processed 126.69 million metric tons of crude oil or 5.08 million barrels per day (bpd) (total Chinese crude demand is slightly over 11 million barrels a day) in the first six months of the current year, just a lowly 0.1% year on year increase, which doesn’t compare favourably with 1.7% output growth in the first quarter 2024, this fall is pointing to a sharp slowdown in refinery processing in the second quarter to some extent because of higher crude prices but more significantly lacklustre domestic fuel demand. Sinopec reported that total domestic refined fuel sales dropped 2.5% year on year to 90.14 million tons, with retail sales falling 4.7% year on year to 56.96 million tons. The latest results mark a continuation of the weak results the company has been posting recently.

Earlier in the year, Sinopec reported a 13% decline in its 2024 profits due to lower domestic oil and gas prices reporting a 2024 net income of 58.3 billion yuan ($8 billion) compared with 66.2 billion yuan posted in 2022 after oil prices declined 17%.

The latest article suggests crude oil refining margins fell, and it’s chemicals businesses continued to lose money.

Part of the problem for Sinopec and many other Chinese refiners who ramped up fuel production last year got it wrong as they anticipated booming business following the lifting of COVID-19 restrictions, but demand didn’t follow their expectations, and remains slower than expected not helped by a debilitated housing market and a static economic profile. The writing was likely on the wall during the period surrounding Chinese New Year, when a major lift in demand looked certain but the reality seemed somewhat muted.?

All eyes remain on a wobbling Chinese outlook despite everything else going on the World today.

Despite all the Chinese statistics we must not forget to check our summer gasoline demand barometer, for us at least the real market clue and driver of 3rd and 4th quarter 2024 oil prices.

Whilst the gap between supply and demand has narrowed, supply is still dominating the gasoline picture which despite the passing of Hurricane Beryl sees American gasoline production currently at 9.485 million barrels a day (a drop week on week of just over 400,000 barrels) whilst demand has also dropped a touch to 9.143 which tells us the expected surge in the fourth of July gasoline demand didn’t exactly surge!!

U.S Gasoline may well still have its day in the sun, but as Summer saunters any price surge needs to rely on a major hurricane between now and late October to disrupt U.S Gulf refinery production, and betting on the path and speed of hurricanes has become a path to the poor house.?

In other news….

Tight Cushing Stocks Widen WTI Backwardation.?

The premium of front-month US crude futures over the M2 contract widened?to its highest since October 2023 this week, as high as $1.60 per barrel, as shrinking stocks in the delivery point of WTI in Cushing fell to their lowest reading in three months.? Freeport LNG Cancels Cargoes as Restart Lags.

The Freeport LNG export terminal has cancelled planned loadings across the third quarter of July as damage from Hurricane Beryl seems to be more impactful than initially thought, with incoming feedgas flows still a fifth of their usual level of 2 billion cubic feet per day. ? Two Tankers Ablaze Off Singapore Coast.?

Singapore’s maritime authorities are carrying?out a search and rescue operation after reports of two vessels catching fire Friday, possibly indicating that the naphtha-carrying Hafnia Mile and the Iranian oil-carrying Ceres I VLCC tanker have collided in the night.? US Sustainable Aviation Fuel Capacity Sees Rocket Growth This Year.?

The EIA predicts that production?of sustainable aviation fuel in the United States could rise by a whopping 1400% this year if all announced capacity additions start up on time, increasing from 2,000 b/d last year to 30,000 b/d in 2024.

They go on to say?SAF?made from renewable biomass and waste resources have the potential to deliver the performance of petroleum-based jet fuel but with a fraction of its carbon footprint, giving airlines solid footing for decoupling greenhouse gas emissions from flight. Suez Canal Revenue Plunges as Houthis Attack.

The annual revenue?of the Suez Canal Authority dropped by almost a quarter in its latest financial year to $7.2 billion as Houthi missile strikes in the Red Sea have prompted most Western shippers to avoid the world’s largest manmade canal. Nigeria’s Onshore Exodus Turns Nasty.

French oil major?TotalEnergies reportedly sold?it’s minority share in onshore SPDC joint venture project to a largely unknown Mauritius-based investor Chappal Energies for $860 million, only months after Shell sold its 30% stake to a Nigerian consortium for $2.4 billion.

This week’s closing price guide:

ICE Brent 82.63 (-2.15)

WTI 80.13 (-1.89)

ICE gas oil 754.75 (-15.25)

Euro Mogas swaps 809.00 (-26.00)

Euro Naphtha swaps 674.00 (-17.00)

Nymex gasoline 2.4504 (-5.05 cents a barrel)

LPG swaps 565.00 (-10.00)

Opec basket of crudes 85.43

Credit - Robert Haynes - Silvergreen Energy Ltd.