It has been a fluctuating week for the oil markets.
In the immediate aftermath of the agreement within the Organization of Petroleum Exporting Countries and their allies in OPEC+, crude prices fell by a devastating seven per cent on July 19.
However, with signs of demand holding despite the spread of the Delta COVID-19 variant, crude oil prices began to rebound later in the week.
Prices edged higher on Friday and, for the week, staged a strong recovery from Monday’s steep slide. This recovery was underpinned by expectations that supply will remain tight through the year, Reuters reported.
Price gains were reported despite a rise in U.S. crude oil stockpiles for the first time since May. Crude inventories rose unexpectedly by 2.1 million barrels last week to 439.7 million barrels, according to the U.S. Energy Information Administration (EIA).
But gloom continues to haunt the markets – on several counts.
China is the world’s largest crude importer. Any changes in its consumption and import patterns impact global crude oil markets in a big way. Reuters reports that high oil prices and China’s crackdown on the use of oil import quotas could result in the lowest crude oil import growth in China since 2001.
Chinese oil imports could grow by up to just two per cent in 2021 from 2020, the lowest growth rate in two decades and much lower than the 9.7 per cent average import growth rate since 2015, Reuters added.
China’s crude oil imports fell to some 9.77 million barrels per day (bpd) in June 2021. They were down two per cent in May, which was the lowest monthly level since the start of the year, according to customs data cited by Reuters.
Over the first half of the year, China imported 260.66 million tons of crude – or 10.51 million bpd, Reuters estimates. This was a three per cent drop compared to the first half of 2020.
Another factor threatening to impact oil markets is the rising oil rig count in the United States. The oil and gas rig count jumped 24 to 604 in the week ending July 23, Enverus reported.
And the prospects of more rigs going up in the second half of this year are growing. “We generally expect the rig count to continue to trend a little higher over the second half, maybe adding an additional 50 rigs or so by the end of the year,” Baker Hughes CEO Lorenzo Simonelli said on July 21.
James Williams of WTRG Economics believes at least 100 more rigs will be put into the field in the second half of 2021.
The impact of the Delta variant is also expected to play a major role in the crude markets. Fresh travel restrictions in Asia have just dashed hopes for a recovery in jet fuel demand this year and worsened the outlook for the entire refining sector due to a resurgence in COVID-19 infections, Alex Kimani said in a recent OilPrice.com piece.
Asia’s worsening pandemic due to the Delta variant is expected to keep flights grounded, posing a serious challenge to refiners despite more encouraging trends in Europe and the United States.
Scheduled flight capacity in Japan was 55.6 per cent below the corresponding week in pre-pandemic 2019, while capacity in South Korea, Australia and India was down 46.4, 56.7 and 40.1 per cent respectively.
In sharp contrast, the aviation capacity in the U.S and Europe has been recovering. But with the Delta variant continuing to play havoc in parts of Europe and North America, even this improvement isn’t guaranteed to hold.
And rising oil prices could help speed climate action by accelerating the shift to electric vehicles, the International Energy Agency suggests.
So crude oil markets are not out of the woods.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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