China Oil Imports Edge Lower

Energy

ICE Brent saw a second consecutive week of gains last week, with the market settling not too far off from US$72/bbl, whilst NYMEX WTI briefly hit US$70/bbl in early morning trading in Asia today, before coming under some pressure. The strength in the market last week comes despite the noise from Russian oil producers that they would expect OPEC+ to agree on increasing output further when they meet in July. Clearly, the market remains focused on demand indicators, which continue to improve. The data from the EIA last week showed that the 4-week average implied gasoline demand in the US hit its highest level since March 2020, and only the second week since March last year, where the 4-week average crossed 9MMbbls/d.

Source: Flickr

The latest positioning data shows that speculators increased their net long in ICE Brent by 8,830 lots over the last reporting week, to leave them with a net long of 267,282 lots as of last Tuesday. This increase was driven by fresh longs entering the market. Given the move we have seen in the oil market since Tuesday, it is likely that this net-long is somewhat larger at the moment.

China trade data out this morning shows that crude oil imports into China over the first five months of the year totaled 221mt, up 2.3% YoY. However, looking at imports over just May, they come in at around 9.69MMbbls/d, which is down from the 9.86MMbbls/d imported in April, and 14.6% down YoY. This suggests that Chinese refiners are reluctant to import at these higher prices, and instead prefer to draw down inventories. We will need to wait for industrial output data later in the month to see if this really is the case, but if it is, it would be the second month in a row, where we have seen Chinese inventories edge lower. Clearly, if we see Chinese refiners taking a step back from imports, this would be a bearish development for the market.

Finally, it’s set to be a busy week in terms of data releases for the oil market. Tuesday will see the EIA release its Short Term Energy Outlook, which will include US production forecasts. On Thursday, OPEC will release its monthly report, which will include OPEC production numbers for May, as well as the group’s outlook for the global market for the remainder of the year. This will be followed by the IEA’s monthly oil market report on Friday, which will also include their views on the outlook for the market over the remainder of the year. In addition, Iranian nuclear talks will continue later this week, and it appears the market is taking the view that it’s less likely we see a deal and a quick lifting of sanctions.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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