Crude oil trading reminder: U.S. interest rate hike worries eased + demand in Asia rose, oil prices tended to rise but hard to fall
Oil prices rose on Thursday, buoyed by signs of a strong economic rebound in top crude importer China and easing fears of aggressive U.S. interest rate hikes. India’s enthusiasm for buying oil is high, bringing support to oil prices. Everbright Securities expects the price of Brent crude oil to remain at a high level and fluctuate around US$85/barrel this year.
Oil continues to rise as fears of China rebound, aggressive U.S. rate hikes ease
Brent crude futures LCOc1 settled at $84.75 a barrel, up 44 cents, or 0.5%. U.S. crude futures CLc1 settled at $78.16 a barrel, up 47 cents, or 0.6%.
Data on Wednesday showed China’s manufacturing activity grew at the fastest pace in more than a decade in February, adding to evidence of an economic recovery in the world’s second-largest economy after strict measures to contain the outbreak were lifted.
China’s seaborne imports of Russian oil are set to hit record highs this month as refiners take advantage of low prices.
Atlanta Fed President Bostic said on Thursday that the economic impact of U.S. interest rate hikes may not really start to “feel” until this spring, which is why the central bank is sticking to a “steady” 25 basis point hike at each future meeting. The comments allayed concerns raised earlier when strong U.S. jobs data had investors concerned that faster and larger rate hikes could be on the way.
Growing expectations of a rate hike by the European Central Bank after consumer inflation beat expectations in France, Spain and Germany kept oil struggling to move higher.
Minutes from the ECB’s February meeting showed policymakers were divided on how to interpret inflation trends and what to signal about the next rate move.However, U.S. crude stockpiles rose for a tenth straight week, weighing on the market.
A stronger dollar also weighed on oil markets after U.S. initial jobless claims data pointed to a strong labor market. Investors expected the Fed to keep interest rates higher for longer as other data showed rising labor costs.
According to the CME “Fed Watch”:The probability of the Fed raising interest rates by 25 basis points in March to the range of 4.75%-5.00% is 70.8%, and the probability of raising interest rates by 50 basis points to the range of 5.00%-5.25% is 29.2%; The probability of a cumulative rate hike of 25 basis points by May is 0%, the probability of a cumulative rate hike of 50 basis points is 67.3%, and the probability of a cumulative rate hike of 75 basis points to the range of 5.25%-5.50% is 31.2%. 1.5% probability of 100 basis points to the 5.50%-5.75% range
India’s enthusiasm for buying oil is high, supporting oil prices
Oil markets were supported by Indian refinery demand hitting its highest level in more than a decade, even as investors fretted that rising U.S. crude inventories and further interest rate hikes in Europe could hurt economic growth. Indian refineries processed 5.39 million bpd of crude in January, the most since 2009, government data showed on Wednesday, as exports shifted more to Asian buyers, including India, under Western sanctions on Russia . India is the world’s third largest oil importer and consumer.
“Indian refineries are churning out refined products due to strong demand and discounted exports of Russian crude,” said Refinitiv analyst Ehsan Ul-Haq, adding that refinery margins are high and with a lack of Russian diesel now in Europe, Indian refiners are also likely to profit from diesel exports.
Data from trade sources last week showed that India’s oil imports from Moscow hit a record high in January. Preliminary estimates released by the government last week showed that overall crude oil imports rose to a six-month high last month, while India’s fuel demand is expected to grow a further 4.7 percent in the next fiscal year starting April 1.
India’s refinery capacity utilization jumped to 106.91% in January from 104.39% in December. India’s largest refiner, Indian Oil Corporation (IOC), was operating its direct plants at 109.97% capacity, the data showed. Meanwhile, India’s Hindustan Petroleum Corporation (HPCL) announced this month that it plans to start the 9 million mt/year Barmer petrochemical project in Rajasthan state by January 2024 in a bid to reduce its petrochemical imports.
OPEC oil production rose by 120,000 bpd as Nigerian production rebounded. While Nigeria’s output rose to a one-year high of 1.44 million bpd, the country remained well below its production quota. OPEC production fell by 49,000 bpd in January but climbed to 29.24 million bpd in February.
JPMorgan says Russia can maintain oil production at pre-war levels. Russia’s oil product exports could drop by 300,000 bpd due to the EU’s ban on imports of Russian oil. Rising demand from India and China will help maintain Russian oil production, but it is unlikely to return to pre-pandemic levels.
The agency said that this year’s cloth oil may be centered at 85 US dollars, maintaining high volatility
This year, under the circumstances of tightening crude oil supply and relatively resilient demand, supply and demand will maintain a tight balance. However, compared with 2022, geopolitical risks have been digested by most, and the overseas economic slowdown is still expected to gradually advance under the background of interest rate hikes.Everbright Securities expects the price of Brent crude oil to remain at a high level and fluctuate around US$85/barrel this year.
In the first half of the year, rising demand combined with limited supply,Oil prices are easy to rise but hard to fall, and there is still room for upside. On the demand side, the release of domestic post-epidemic recovery dividends, the relative resilience of the European and American economies, and the subsequent rise in seasonal demand will drive the demand for crude oil upward. On the supply side, after the implementation of the European Union’s sanctions on Russia’s refined oil exports, Russia’s exports of some refined oil products will be restricted in the short term, and Russia will actively reduce production, which will support oil prices. Whether oil prices will rise further in the future, first, wait for the further recovery of the domestic economy; second, observe whether the actual reduction of Russian crude oil production exceeds expectations; third, if the subsequent tightening expectations weaken, the fall of the U.S. dollar index will further support oil prices.
In the second half of the year, as Russia’s refined oil trade gradually shifts to regions outside the European Union, the space for production reduction is expected to narrow, and the U.S. economy is gradually heading for a structural recession, which may drive the oil price center to move down slightly. But in general, considering OPEC’s strong willingness to raise prices and the United States’ demand for timely repurchase of strategic oil reserves, the downward space for oil prices is limited. Since December last year, the price of Brent crude oil has stabilized above $75 per barrel.
(Daily chart of Brent crude oil main contract)
At 8:41 on March 3, Beijing time, the main contract price of Brent crude oil was quoted at 84.35 US dollars per barrel.
