Oil prices finished yesterday stronger on the back of little fresh developments. ICE Brent settled almost 2.4% higher on the day, taking it back above $76/bbl. Prices, however, are under some pressure in early morning trading today. Possibly, yesterday’s strength was in response to the lack of any outcome from US Secretary of State, Antony Blinken’s, latest visit to Israel. There had been hopes that following the killing of Hamas leader, Yahya Sinwar, there could be some de-escalation in the war. On top of this, the market continues to wait for Israel’s response to Iran’s missile attack. The uncertainty around how this plays out would leave speculators hesitant to be too short the market, something speculators had been before this most recent escalation, due to demand concerns and a bearish 2025 outlook.
Numbers from the API overnight showed that US crude oil inventories increased by 1.6m barrels over the last week, a bit above the roughly 1m barrel build the market was expecting. Meanwhile, refined products saw draws with gasoline and distillate fuel oil inventories falling by 2m barrels and 1.5m barrels, respectively. The more widely followed EIA weekly report will be released later today.
The Chinese government increased the 2025 crude oil import quota for private refiners by 6% year-on-year to 257m tonnes (a little over 5.1m b/d), after keeping it unchanged for four consecutive years. The higher quota comes as new refining capacity ramps up, while quotas could still be adjusted depending on demand and capacity. However, refiners that have not imported crude oil over the last two years will not be allocated any quotas.
European gas prices strengthened yesterday with TTF continuing to trade above EUR40/MWh. Middle East tension continues to support gas prices, while a production halt at Equinor’s Sleipner B platform in the North Sea would have also provided some upside. In addition, dry weather conditions in Brazil have reduced hydropower generation, leaving Brazil to rely more on LNG imports for power generation. A continuation of this in the months ahead would leave the global LNG market tighter than expected over the Northern Hemisphere winter.