Energy Report: Asia Deep Freeze

Energy shortage fears are spreading across Asia as winter has been relentless across that continent. Despite concerns of rising cases of COVID and mixed signals on Chinese oil imports, expectations for China's oil demand is rising and is poised to move higher. Zerohedge reported that “The recovery in Chinese auto sales continued strong through the end of the year, with vehicle wholesales rising 6.4% and passenger vehicle sales rising 7.2% in December 2020” not to mention strong manufacturing data. US refinery runs are on the upswing and the market is pricing in the risk of more regulation. Add to that we have crude oil options expiration adding to the mix. While we could see a correction in prices in the short term, as we have said for months, the uptrend in oil is solid. We are targeting $55 near term but we may consolidate.  

It was reported that China’s total crude oil imports rose 7.3% in 2020 with record arrival imports in the second and third quarters. Yet last month China's crude imports fell to the lowest level in more than two years in December. That was the lowest for the month of December since 2018. The slowdown came as it appeared that Chinese refiners had stockpiled enough crude oil at lower prices and will wait to see if prices dip before resuming patches.

Chinese refiners are busy trying to refine heating fuels as winter in Asia is brutal this year. The demand for fuel is driving up prices and there are reports of some shortages. S&P Global reports that China's northern provinces faced multiple cold waves since December causing energy shortages and forcing utilities to deploy all energy sources available. In the first week of January, Beijing recorded the coldest temperature since 1966 and other provinces hit their lowest mercury level on record.

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In Japan, they are also having major issues and are reverting back to burning oil to keep people warm. This comes as the spot liquefied natural gas market surges to all-time record highs. S&P Global reports that Asian spot LNG prices have risen to unprecedented levels due to February cargo shortages, transportation bottlenecks, supply outages, and record winter temperatures boosting end-user demand. They say that futures signal JKM LNG prices could ease for March delivery but a looming cold snap in the Northern Hemisphere in the US and Europe present significant upside risk for the global gas market.

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