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Current oil spike does not match market fundamentals
Current oil spike does not match market fundamentals

Khaleej Times

time14 hours ago

  • Business
  • Khaleej Times

Current oil spike does not match market fundamentals

The current spike in oil prices as a result of the Iran-Israeli conflict is to be viewed as a temporary phenomenon, as there is no change in oil market fundamentals, analysts say. 'Oil and gas are still flowing out from the Gulf. There are likely to be some consumers seeking to secure supplies in the short term to offset any potential interruption to supply and that is helping to push oil prices higher,' Edward Bell, Acting Chief Economist & Head of Research, Emirates NBD, told Khaleej Times. Oil prices have been the primary market expression of the dynamics of the current Israel-Iran conflict. Oil assets, whether production sites or export infrastructure or ships, have not been directly targeted in the exchange of fire between the two countries but markets are nevertheless pricing in security of supply concerns. In an immediate reaction to the news of the initial attacks on June 13 oil prices jumped sharply higher. Brent futures spiked to as high as USD 78.50/b and have since been responding to headlines, selling on market indications of a potential diplomatic solution and rising on anticipation that the conflict could deepen or spread. Volatility in oil prices has surged as markets price in a range of scenarios, all of which seemingly tilt toward the upside, such as attacks on oil infrastructure or the closure of the Strait of Hormuz. Options markets are positioned to the upside by the strongest degree since the start of the Russia-Ukraine war. Time spreads have also widened sharply into backwardation, reversing what had been an equivocal stance on the near-term outlook for oil market tightness over the rest of this year. 'At just shy of $5 per barrel in backwardation, the current 1-6 month time spread for Brent futures are above the 95th percentile of spreads dating back to 1990,' a research note from Emirates NBD said. Oil markets have also generally ignored downbeat economic data this week — a drop in US retail sales and a downgrade to growth from the Federal Reserve. Correlation with the US dollar has turned negative in the last several days after oil and the greenback had generally been moving in tandem for much of 2025. Oil and the dollar had been trading on a weak global growth narrative for the last few months thanks to the uncertainty caused by the tariffs introduced by the Trump administration. 'But now the geopolitical risk in the oil market is splitting the outlook for oil and the dollar, creating an even worse environment for central banks who will have to contend with slow growth and potentially even higher inflation,' Bell said. Geopolitical anxiety, if it does not result in actual supply disruption, tends to burn hot in oil markets but also burn fast, Bell said. 'Even the attacks on the Abqaiq oil processing facilities in 2019 saw a spike in oil from $60 per barrel to almost $70 per barrel in a single day but gains then faded over the subsequent weeks. Oil markets are accustomed to geopolitical risk and there is slack available in the market to absorb at least some of the anxiety over supply security,' he added. Spare capacity within OPEC+ is estimated at around five million barrels a day, though with the caveat that much of that capacity is reliant on access to the Strait of Hormuz to make it out to seaborne markets. For now there has been no material interruption to shipping in the Gulf region. 'Since June 13 there has been a steady stream of departures from UAE oil export terminals,' Bell noted. Higher volumes with lower oil prices was going to result in wider fiscal deficits or smaller surpluses for GCC governments. 'If oil prices hold to their current levels and OPEC+ sticks with its higher output targets that should mean a better picture for regional balances,' Bell said.

China builds a crude oil war chest amid Middle East tensions
China builds a crude oil war chest amid Middle East tensions

Reuters

time3 days ago

  • Business
  • Reuters

China builds a crude oil war chest amid Middle East tensions

LAUNCESTON, Australia, June 17 (Reuters) - China is continuing to build up crude oil stockpiles as it refines substantially less than what it has available from imports and domestic production. This allows the world's biggest oil importer to buy lower volumes in coming months as prices surge over Middle East tensions. China's surplus crude amounted to 1.4 million barrels per day (bpd) in May, the third straight month it has been above the 1 million bpd level, according to calculations based on official data. The price of crude oil has spiked since June 13 when Israel launched a series of air strikes against Iran, prompting drone and missile retaliation by Tehran. While the conflict has yet to hit Iran's crude oil production and export facilities, the heightened risks have seen Brent futures rise almost 6% since the close on June 12 to trade around $73.58 a barrel in Asia on Tuesday. In past occurrences of a rapid rise in crude prices, Chinese refineries have responded by trimming their imports and using stockpiled oil. Given the lag of up to two months between when cargoes are arranged and when they are delivered, this means any pullback in China's imports will likely only become apparent from August onwards. While much will depend on the path of crude oil prices in coming weeks, it's certain China has plenty of scope to lower imports and put downward pressure on prices. China does not disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate can be made by deducting the amount of oil processed from the total of crude available from imports and domestic output. Refiners processed 13.92 million bpd in May, according to official data released on Monday, down from 14.12 million bpd in April and also 1.8% lower than a year earlier. Crude imports were 10.97 million bpd in May, down from 11.69 million bpd in April, while domestic production was 4.35 million bpd, up slightly from the 4.31 million bpd in April. Putting May imports and domestic output together gives a total of 15.32 million bpd of crude available to refiners, leaving a surplus of 1.4 million bpd once refinery throughput of 13.92 million bpd is subtracted. For the first five months of the year, surplus crude available rose to 990,000 bpd, from 880,000 bpd for the first four months. For the first two months of 2025, China's refiners actually processed about 30,000 bpd more than what was available from crude imports and domestic production, the first time in 18 months that they had drawn on inventories. But the massive surpluses in March, April and May have reversed the earlier draw. It is worth noting that not all of this surplus crude is likely to have been added to storage, with some being processed in plants not captured by the official data. But even allowing for gaps in the official data, it is clear that from March onwards China has been importing crude at a far higher rate than it needs to meet its domestic fuel requirements. An indication of how price sensitive China's refiners are is shown by the expected strong crude imports in June, with LSEG Oil Research forecasting arrivals of 11.72 million bpd. This would be up 750,000 bpd from the official data for April, and the sharp rise reflects the declining trend for crude prices when June-arriving cargoes would have been secured. Brent futures dropped from a six-week high of $75.47 a barrel on April 2 to a to a four-year low of $58.50 on May 5, prompting Chinese refiners to suck up cargoes. Most of these shipments will be arriving in June and July and will likely give the illusion that China's crude demand is recovering. But the weak refinery processing numbers show that it's likely the case that China is storing crude. With the strength in prices amid Middle East tensions, it's also likely that refiners will cut purchases, and also seek out discounted oil from sanctioned exporters Russia and Iran. Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn, opens new tab and X, opens new tab. The views expressed here are those of the author, a columnist for Reuters.

Oil demand growth to continue, no peak in sight, OPEC Secretary General says
Oil demand growth to continue, no peak in sight, OPEC Secretary General says

Reuters

time10-06-2025

  • Business
  • Reuters

Oil demand growth to continue, no peak in sight, OPEC Secretary General says

CALGARY, June 10 (Reuters) - Oil demand growth will remain robust over the next two and a half decades as the world population grows, OPEC Secretary General Haitham Al Ghais said on Tuesday. The organization expects a 24% increase in the world's energy needs between now and 2050, with oil demand surpassing 120 million barrels per day over that time period. That estimate is in line with the group's 2024 World Oil Outlook. "There is no peak in oil demand on the horizon," Al Ghais said, speaking at the Global Energy Show in Calgary, Alberta. He said that OPEC admired what Canada's oil industry has done to increase its oil output in recent years. OPEC is unwinding its output cuts at a faster pace than originally anticipated, lifting production by 411,000 barrels per day for May, June and July. The increases, along with concerns that U.S. President Donald Trump's trade war will weaken the global economy, have pressured oil prices in recent months. Global Brent futures were trading at $67.28 a barrel on Tuesday. The U.S. Energy Information Administration (EIA) on Tuesday said it expected Brent oil prices to fall near $60 a barrel by the end of the year and average $59 a barrel next year, hitting U.S. oil production. Al Ghais on Tuesday also said OPEC welcomed recent pushback against what he referred to as unrealistic climate goals, stressing the need to reduce emissions but not pick and choose between energy sources.

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