The price of crude oil briefly touched $70.00 a barrel again for the first time since 2018 as the re-open trade increased demand. OPEC dominates the global oil market while U.S. rig count failed to respond to higher prices.
China saw a slight dip in imports, but other nations saw an increase, continuing the trend of increasing demand and falling global inventories. Yet the resumption of the Iranian nuclear talks and concern that a roadmap to a global corporate tax will hurt growth, is slowing the impressive rise in the crude oil market.
Let’s look at rig counts. In the past when oil processing rose, rig counts would increase rapidly raising U.S. production. That is not happening this time. Reuters reported that the oil rig count was unchanged last week at 359, up from a cyclical low of 172 in Aug, but down from 683 before the arrival of the first wave of the coronavirus epidemic. Shale producers are either showing incredible restraint or they can’t get funding. Banks are turning their back on U.S. energy, giving rise to a new era of OPEC dominance.
The Energy Report has argued that President Joseph Biden’s climate agenda would ultimately make us more dependent on foreign oil and make “OPEC GREAT AGAIN.” Now the world’s largest oil trader agrees. Bloomberg News reports that OPEC+ appears in control of crude prices as U.S. production is lagging pre-pandemic levels, according to a senior executive at the world’s biggest independent oil trader, Vitol Group.
The decline in U.S. drilling and output leaves little competition to efforts by the producers’ group to manage markets, Mike Muller, Vitol’s head of Asia, said during an online conference on Sunday. Brent crude closed above $70 a barrel last week for the first time in two years, as buyers demand more oil than producers are pumping. U.S. oil producers are still employing only half the rigs they used before the coronavirus struck. Meanwhile OPEC+, as the group led by Saudi Arabia and Russia is known, is easing barrels back on to the market as demand recovers.
“There’s a perception in the market that control is with OPEC+,” Muller said at the event hosted by the consultancy Gulf Intelligence. “It will take a long time for U.S. oil to come back” to production levels seen before the coronavirus outbreak, he said.
China’s crude oil imports fell 14.6% in May from a high base a year earlier, with daily arrivals hitting the lowest level this year, as maintenance at refineries limited consumption of the resource. But refinery utilization rates are expected to rebound in coming months as refineries resume operations, analysts said.
May arrivals were 40.97 million tonnes, data released by the General Administration of Customs showed on Monday, equivalent to 9.65 million barrels per day (bpd). That compares to 9.82 million bpd in April and 11.3 million bpd in May last year when Chinese buyers snapped up cheap oil amid the spread of the coronavirus. About 1.2 million bpd of China’s refining capacity was offline in May, up from 1 million bpd in April, according to Refinitiv analysts.
China’s crude arrivals are expected to reach 11-12 million bpd in the third quarter and refinery runs rise by 0.5 million bpd from the second quarter, Mukesh Sahdev, senior vice president of Rystad Energy said. The Chinese government has been ramping up scrutiny of the oil industry by imposing taxes on key blending fuels and investigating crude imports at state energy giants and independent refiners.
The tax policy is expected to hit the demand for bitumen blend, mostly shipped from Malaysia, which analysts say is based on heavy crude from Venezuela and Iran. “Plugging the tax holes is supportive of the refinery runs and thus should lead to higher imports,” said Sahdev.
For refined oil products, customs data on Monday also showed exports in May fell to 5.41 million tonnes from 6.82 million tonnes in April but jumped 38.9% higher versus a year earlier.
Total natural gas imports, including liquefied natural gas (LNG) and piped gas, reached 10.32 million tonnes, up from 10.15 million tonnes in April and 7.84 million tonnes in May 2020.
Ship tracking data showed that China’s LNG imports hit more than 7 million tonnes in May, a record volume for the month, buoyed by robust industrial activity and power generation demand in southern China.