Crude Oil Flat as Tight Spot Market Vies With Fears of China Slowdown By Investing.com
By Geoffrey Smith
Investing.com — Crude oil prices were little changed from Wednesday’s close in early dealings in New York on Thursday, torn between signs of a tight spot market in the U.S. and a possible hit to Chinese demand from a real estate-led slowdown in China over the coming months.
By 9:30 AM ET (1330 GMT), futures were flat at $72.25 a barrel, while futures, the global benchmark, were up 0.4% at $76.47.
Prices have rebounded in line with most risk assets after the Federal Reserve said on Wednesday it wouldn’t start reducing its monthly bond purchases immediately – even though its outlook over the next year took a hawkish turn, with more policymakers coming round to the view that it will be necessary to raise interest rates already next year.
The absence of reports that Evergrande, a Chinese real estate developer in trouble, had missed a $83 million interest payment for a dollar bond also helped to support the sentiment. Newswire reports suggested that the authorities had instructed the company not to default, but it’s unclear how Evergrande, which is rated on the brink of default, could raise the money to comply. The market has been talking about Evergrande’s specific concerns over the past few days and more broadly how the authorities might control deleveraging the property sector. It accounts for 25 percent of Chinese GDP, as well as a significant portion of its fuel need.
The current U.S. tightness, which was illustrated last week by another 3.5million barrel drop in U.S. oil stocks, is still the best market prop. It was the seventh weekly drop in U.S. oil stocks and puts them at their lowest levels since September 2018.
This is due to outages in the Gulf of Mexico. The Bureau of Safety and Environmental Enforcement’s data showed 294,000 barrels a day – one-sixth of total Gulf output – still offline on Wednesday, more than two weeks after Hurricane Ida swept through the region.
BP (NYSE 🙂 had earlier stated that its four production sites in the Gulf were back up and running. However, the company has major issues in its domestic market, the U.K. where a lack of drivers means it is limiting fuel deliveries to stations. Exxon Mobil (NYSE:), too, reportedly acknowledged similar problems.
The real action, however, continues to play out in markets across the world, with both Asian and European buyers scrambling to position themselves for the winter heating season amidst a scarcity of supplies, due to hurricane impacts in the Gulf and to Russia’s game of cat-and-mouse with Europe over the Nord Stream 2 gas pipeline.
Gazprom (MCX) declined an opportunity earlier in the week to reserve additional export capacity via Ukraine’s Pipeline System, which is traditionally the largest conduit of Russian gas to Europe. This has increased the pressure on the bloc for approval of the Nord Stream link to allow shipments to begin. Many in Europe, and elsewhere, believe that this will increase European dependency on Russian gas.
Analysts at Citigroup (NYSE:) said in a note to clients earlier that supply pressures could lead to spikes of over $100 per mm Btu this winter, if conditions turn out colder than forecast.
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