Crude oil prices edged lower in early Asian trade Friday as traders booked profits following the overnight rise, underpinned by market anxiety that the global glut is shrinking at a slower rate than expected.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in August CLQ6, -0.94% at $45.54 a barrel, down $0.34, or 0.7%, in the Globex electronic session. September Brent crude on LCOU6, -0.97% ICE Futures exchange fell $0.36, or 0.8%, to $47.01 a barrel.
Prices were also suppressed by an appreciating greenback, the currency that the oil industry uses to conduct business. According to the Wall Street Journal Dollar Index BUXX, +0.08% , the dollar was last up 4 cents at 86.88.
Any risk-on sentiment seen in the past few weeks has been short-lived and sporadic as market players switch back and forth between data that showed declining production in North America and the still-elevated inventories of crude and refined products in the world.
In June, global oil supply grew by 600,000 barrels a day to 96 million barrels a day, said the International Energy Agency in its latest oil report, but warned “the existence of very high oil stocks is a threat to the recent stability of oil prices.”
In the first quarter alone, global refinery run growth outpaced refined product demand growth by 60%, leaving the world drenched in unwanted fuel, the agency noted.
A glaring example of waning demand is China, where crude imports slipped 5% on-month in June to 30.62 million tons, or 7.5 million barrels a day. Year-on-year, China’s crude buying rose 3.8% in June.
“A major factor contributing to weaker crude demand is an apparent oversupply of fuels in the domestic and regional markets,” said BMI Research, noting sluggish home demand has led China’s fuel exports to skyrocket.
However, some analysts said that as China’s domestic crude production continues to fall due to aging oilfields and budget cuts, the country’s thirst for crude is likely to hold up, at least in the coming months.
“China’s own crude production is significantly less than what the country needs so the only way is through imports,” said Gao Jian, an energy analyst at the Shandong-based SCI International.
China’s crude output in the first half of the year was down 4.6% to 101.59 million tons, while crude runs was 2.8% higher at 267.35 million tons.
Although crude imports may abate in the second half of the year compared with the first six months, due to port congestions and refiners running out of import quotas, overall demand should still be healthy, Mr. Jian said.
Another encouraging sign is that China’s second quarter gross domestic product rose 6.7% on-year, largely in line with the market’s expectation of a 6.6% on-year increase.
China’s June industrial output rose 6.2% on-year, beating the market’s estimate of an 5.9% on-year expansion.
Nymex reformulated gasoline blendstock for August RBQ6, -1.02% — the benchmark gasoline contract — fell 63 points to $1.4077 a gallon, while August diesel traded at $1.4027, 37 points lower.
ICE gasoil for August changed hands at $411.50 a metric ton, down $0.50 from Thursday’s settlement.
Source: Market Watch, 15 July 2016
