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.
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