When not much seems to be going their way, spreading fake news is the preferred route of the collective West to put a dampener on oil market bulls. Less than a month after European Union’s much-hyped ban on refined petroleum products via sea route came in effect – and failed to yield the desired outcome –rumor mill was churning how the UAE may be mulling to quit the mighty oil cartel – Opec.
The impact did not last two days and an unambiguous statement from the Emirates seems to have sealed the deal. There is not enough gas in the tank for any bear run in the immediate future, no matter how hard the West is trying. Russian oil has found willing buyers in Asian gradually growing markets. Opec has stayed true to its word, complying with reduced production month after month – with Russia and Saudi Arabia leading the way, not flinching a bit. Russia also unilaterally slashed production by 5 percent last month to counter EU’s ban.
And then enters China. The biggest of all levelers. As per latest estimates, China’s daily oil demand at 16 million barrels per day has reached a new record. The revival of Chinese demands has surprised even the most bullish observers who had earlier predicted a gradual return to normalcy and pre-Covid levels as China announced an abrupt end to zero Covid policy.
Industrial output data from China suggests a decade highest growth is in order, for the running quarter. And on the supply front, Opec’s firm stance for the rest of the year ensures the market remains far from balanced, and with China’s demand only tipped to grow further, observers have raised a possibility of substantial supply crunch going deeper in 2023.
That is also because US shale supply has not kept pace after years of underinvestment. Global spare production capacity is being put in use and large inventory drawdowns are becoming a common recurrence. A return to triple-digit by 3Q2023 is fast emerging as street consensus – among the likes of Morgan Stanley and JP Morgan. The only respite could possibly come from the fears of recession in the West materializing sooner, as European governments reel from non-achievement of aggressive monetary tightening targets.
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