Geopolitics is still lending support and weather conditions in the Atlantic are conducive to forming more and stronger hurricanes, which could be highly disruptive for the industry. On fundamentals, we have had unusually high refinery runs in the US, with levels exceeding 95%, so we’ve seen less exports. Year-on-year volumes to Europe, a primary market for WTI Midland, have declined by almost 30%. That’s a significant drop. Nigerian barrels are also struggling to move. This decrease in supply has led some traders to seize the opportunity to hoard barrels, significantly widening the arbitrage spread from the US to Europe. The situation is now normalizing, but the market has been quite dynamic.
Is the drawdown in US inventories a critical floor under oil prices?
That was the initial catalyst for the price increase, which included reductions in gasoline and diesel stocks. But the uptick was driven by favourable margins, rather than demand necessarily. So, we might see more refined products entering the market and less crude oil, downplaying the overall impact. Elsewhere, we have Kazakhstan undergoing maintenance, leading to a temporary reduction of around 150, 000 b/d – which is equivalent to the overproduction we’re seeing from OPEC+. Fundamentally, the market’s direction is being
influenced by broader macroeconomic factors. Ten-year US Treasury yields have dropped by almost ten basis points, which is a signal for investors to buy, and explains why we saw the stock market, oil, and commodities all pick up this week, combined with the usual seasonal Q3 demand.
How much support is China lending to oil demand?
It’s not particularly supportive. This has been a persistent issue for OPEC. Over the past five to ten years, we’ve grown accustomed to an annual increase of about one million barrels in demand from China. However, under Xi Jinping’s leadership, China is focusing heavily on energy security and reducing its reliance on oil imports. We’re witnessing a gradual decoupling of the Chinese economy from oil demand and economic growth. China has also ramped up efforts to produce its own oil and gas.