Crudes, ULSD Futures Up on Heightened Geopolitical Tension
3/25 6:42 AM
Crudes, ULSD Futures Up on Heightened Geopolitical Tension CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange moved off Friday's lows early Monday as geopolitical tension and an expected global supply deficit in the second quarter underpin contract values. Ongoing attacks by Houthis rebels on commercial vessels transiting the Red Sea over the weekend sustained a geopolitical risk premium in oil values, with increased shipping costs and voyage time stretching shipping capacity while forcing greater demand for bunker fuel. Wood Mackenzie suggests as much as 20% of the 8.5 million bpd of crude and oil products that traverse the key waterway has rerouted around the Cape of Good Hope, adding 4,000 miles to the voyage. An extension of production cuts by OPEC+ through the second quarter triggered revisions by forecasters in March, with the Energy Information Administration now projecting a 900,000-bpd shortfall between global production and demand that will lead to inventory drawdowns. Market expectations see the production cuts by the producer coalition extended through year end. Where there's variance in market opinion for the global supply-consumption outlook is demand. The more bullish of outlooks see a recovery in China's economy driving increased consumption, with the Organization of the Petroleum Exporting Countries in their Monthly Oil Market Report released mid-March projecting the Chinese economy will spur a 630,000-bpd year-on-year growth rate in oil demand in 2024. The China Development Forum took place in Beijing over the weekend, which included a high level of participation by U.S. companies, according to reports. The forum follows China's "Two Sessions" earlier in March which drives macroeconomic and energy policy by Beijing. It was during the "Two Sessions" when Beijing set China's 2024 economic growth target at 5%, which drew large skepticism considering its difficulties in its property markets, high youth unemployment, weak consumer sentiment, and the withdrawal of foreign investment. An analysis by The Oxford Institute for Energy Studies released in March suggests there's reason to believe Beijing's optimistic growth outlook. "Meeting the 5% growth target will not be easy, but it is not impossible with efforts to stabilize the real estate market, more industrial support and modest increases in consumption," states the Oxford paper. On Sunday (3/24) speaking in Beijing at the forum, Kristalina Georgieva, managing director of the International Monetary Fund, said, "In the medium-term, China will continue to be a key contributor to global economic growth. While low productivity growth and an aging population are factors affecting growth, there are also tremendous opportunities," Georgieva said China faces "a fork in the road" in how it proceeds in spurring its economy by either continuing with old policies or updating its policies "for a new era of high-quality growth." The IMF managing director said Beijing should adopt policies towards a "higher reliance of domestic consumption." Georgieva said China needs to strengthen its business environment by "ensuring a level playing field between private and state-owned enterprises." The authors of the Oxford analysis note the wide variance in expected demand growth by China, indicating a range for annual growth from 300,000 bpd to 800,000 bpd, themselves projecting a year-on-year growth rate of 660,000 bpd. They point to "the rise of e-commerce and packaging" that is supporting consumption and petrochemical demand. Jet demand in China is also seen expanding on increased travel both domestically and internationally. Near 7:30 AM ET, NYMEX May West Texas Intermediate futures were near $81 bbl, up $0.40, and ICE May Brent futures gained a similar amount to $85.85 bbl. NYMEX April ULSD futures advanced $0.02 to $2.6734 gallon, while April RBOB futures edged lower to $2.7355 gallon. Brian L. Milne, 1.732.768.0260, brian.milne@dtn.com, www.dtn.com. (c) Copyright 2024 DTN, LLC. All rights reserved.
 
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