The upward momentum in oil prices continues. On the week closing, Brent crude rose to $68.28 per barrel, and has not been able to penetrate the $70 mark for 17 months. West Texas Intermediate (WTI) rose to $64.90 per barrel.
Oil’s optimistic demand outlook overshadows falling demand in China and India, but could not offset the strong US manufacturing activity that has surpassed pre-pandemic levels.
China’s economic growth has shown signs of slowing down. India has surfaced as having the highest number of coronavirus disease (COVID-19) cases, possibly affecting the entire world’s economic recovery, which indicates that the global market has not yet come out of the danger zone but is heading in the right direction. Entering May, the 3-million-barrel-per-day (bpd) gradual increase from OPEC+ producers has started and has been swiftly absorbed by the market.
Positive oil market sentiments are still supported by higher demand expectations and vaccine rollouts. The upcoming summer driving season continues to manifest despite lower refining activities in India and China.
The latter’s crude imports fell in April as demand slowed following a surge in buying in the first quarter. China imported 9.86 million bpd of crude oil in April, the lowest so far this year but similar to levels registered in April 2020.
India’s refining industry is weighed down by falling demand and labor shortages. Indian diesel demand is likely to have fallen by around 15 percent in April as COVID-19 cases surged. The country’s diesel consumption before the pandemic was around 1.8 million bpd. The US Energy Information Administration reported that crude oil inventories fell by 8 million barrels to 485.1 million, more than expected. This means it has fallen below the 0.5-billion-barrel mark as refining output rose and exports surged.
The arbitrage incentives helped US crude oil exports surge to 4.12 million bpd, an uptick of 1.58 million bpd, or 62 percent, from the previous week and the highest export level in 14 months.
The latest figures from the Commodity Futures Trading Commission on May 4 showed that long positions on crude oil futures on the New York Mercantile Exchange numbered 662,720 contracts, up 8,431 from the previous week (1,000 barrels for each contract).
Despite the increase in positions, there is no clear pattern as investors are putting less money to work despite central banks intervening massively, which is worrisome.
The fact that investors are still shying away for almost seven weeks indicates that they take a longer view and, apparently, prefer to take a prudent approach by selling, which will reduce liquidity in the futures market eventually.
• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter: @faisalfaeq