Crude futures corrected, as signs of weakness multiplied across markets, as we mentioned yesterday. ICE Brent November contract fell from 80*/b to 77.7 $/b on early Wednesday, as time spreads started to correct as soon as Monday, amid rather loose fundamentals. Indeed, the API survey depicted a grim outlook for US inventories, as crude stocks built by more than 4 mb while gasoline and distillate stocks also built by 3.5 mb and 2.4 mb indicating a system-wide recovery after the Ida hurricane. Globally, kpler reported a slight global build of 4 mb, at odds with prior weeks’ draws.
News about the Chinese power crunch – with 17 regions curtailing industrial output due to electricity shortage amid sky-high coal prices and low hydro generation – are looking increasingly worrisome for the Chinese oil demand. About 1 mb/d of oil demand is used for industrial purposes, with refined product usage skewed towards residuals and gasoil use. INE fuel oil futures dropped by 3.7% yesterday, while Chinese crude oil futures were only dented by 2.5%. Looking at industrial output prices, Silicon iron and iron ore futures skyrocketed by respectively 4% and 2% at the close, reflecting the reduction of Chinese output rippling through the entire industrial supply chain. There is little substitution possible between oil-fired electricity generation and conventional generation as backup generators are not widespread in China, and oil-fired installed capacity is insignificant compared to coal capacity.
Get more analysis and data with our Premium subscription
Ask for a free trial here
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.