Oil prices take center stage as demand acts up
Global commercial crude balances tightened, led by weaker supply from the US and OPEC and demand growth driven by reopening Asian economies. The IEA and OPEC Secretariat see softer balances on weaker demand. In contrast, the EIA sees a tighter market in 2022 after revising non-OPEC supply lower and expecting a stock build-up in the first half of this year.
All agencies revised down 2022 global demand growth, led by Asia.
The IEA and EIA see weaker demand due to COVID-19 restrictions in China, while the EIA and Secretariat both reduced US demand.
The demand hit in
China will be slower with the COVID-19 pandemic returning to China. Its crude imports grew in April, averaging 10.5 million barrels per day, although weakening fuel demand due to the coronavirus lockdowns has dampened throughput at Chinese refineries.
According to OPEC’s recent outlook, world oil demand growth in 2022 is expected to increase by 3.4 million bpd. Non-OPEC supply growth for 2022 was revised down by 0.3 million barrels to 2.4 million bpd.
According to some industry sources, Russia’s crude output is expected to fall by 0.9 million bpd to 9.14 million bpd in April, with production expected to fall further as the EU prepares to impose an embargo on crude imports from Russia. By August, Russian output is likely to fall by 2.8 million bpd.
Refinery margins continued to rise in all main trading hubs. This improvement in refining economics was mainly attributed to the recovery in global mobility, a decline in refinery product output in the US, robust gasoline exports in Europe, and weather-related outages in Asia amid a tighter product balance except for naphtha.
In addition, profit margins for refining jet fuel in Europe have skyrocketed in recent weeks, driven by strong seasonal demand, combined with low stocks and a lack of local supply.
Geopolitical developments in Europe, oil supply concerns and upward pressure from tight products markets were offset by worries about global economic and oil demand growth amid tumbling equity markets and soaring inflation.
Crude oil futures prices remained broadly flat. However, due to growing concerns about an economic slowdown and lower global oil demand outlook, market selloffs amid news of potential softer EU sanctions against Russian oil were offset by ongoing declines in product stocks, weekly
EIA data reported.
Crude imports could improve slightly in May should COVID-19 restrictions ease, with some refiners keen to buy Russian cargoes at steep discounts. In addition, the recent historic hike in interest rates by the US Fed could further dampen investments in the US oil sector as the cost of capital and equipment becomes increasingly more expensive amid inflationary pressure.