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Distillate inventories amounted to 118 million barrels on Jan. 27, which was 24 million barrels (-17% or -1.43 standard deviations) below the prior ten-year seasonal average. The inventory deficit has narrowed from 31 million barrels (-22% or -2.05 standard deviations) on Oct. 7 (“Weekly petroleum status report”, U.S. Energy Information Administration, Feb. 1). Chartbook: U.S. distillate fuel oil inventoriesBy contrast, distillate consumption has been restrained by high prices and the marked slowdown in the industrial economy. Growth in distillate consumption peaked in late 2021 and has been weakening steadily since then, with consumption down year-on-year in most months since April 2022. Related columns:- U.S. manufacturing is in recession (Reuters, February 1, 2023)- Recession now or later?

[1/2] Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Oklahoma, U.S., March 24, 2016. Hedge funds and other money managers sold the equivalent of 17 million barrels in the six most important petroleum-related futures and options contracts over the seven days ending on Jan. 10. Investors sold a total of 29 million barrels in the two most recent weeks, after purchasing 103 million barrels in the two weeks before, according to position records published by regulators and exchanges. The net position in middle distillates is 60 million barrels (48th percentile) but the net position in crude is just 301 million (9th percentile). Sluggish output growth from U.S. shale producers, sanctions on Russia's oil exports, China's eventual emergence from the coronavirus pandemic and depleted diesel stocks are all contributing to eventual bullishness about prices.

The ban is likely to create a diesel supply shortfall that Europe hopes to fill with Chinese fuel, some of which will be produced from Russian crude. China has raised its first batch of 2023 export quotas for refined oil products by nearly half from a year ago. "But without Chinese exports pushing swing barrels westward, Europe is unlikely to replace the 0.5 million bpd loss in Russian diesel exports come the embargo," Energy Aspects analysts said. Russia has long been the main diesel supplier for Europe, where refineries do not produce enough to meet domestic demand from its large diesel car fleet. Reuters GraphicsAn EU ban on Russian crude imports that took effect in December will be broadened to include refined fuels from Feb. 5.

☆ Oil edges higher as petroleum demand set to touch record next year
▼ + stars: | 2023-01-10 | by ( Arathy Somasekhar | ) www.reuters.com time to read: +3 min

ETHOUSTON, Jan 10 (Reuters) - Oil prices edged slightly higher on Tuesday as the U.S. government forecast record global petroleum consumption next year and as the dollar hovered at seven-month lows. A weaker dollar can boost demand for oil, as greenback-denominated commodities become cheaper for holders of other currencies. But analysts said a revival of Chinese demand may only give oil prices limited support under downward pressure from the global economy. Goldman Sachs expects that the growing ability of the Organization of the Petroleum Exporting Countries (OPEC) to raise prices without hurting demand too much will limit downside risks to its bullish oil forecast for 2023. Separately, U.S. stockpiles of crude oil and distillates were expected to have fallen last week, a Reuters poll showed.

☆ Oil rises 1% as petroleum demand set to touch record next year
▼ + stars: | 2023-01-10 | by ( Arathy Somasekhar | ) www.reuters.com time to read: +3 min

ETHOUSTON, Jan 10 (Reuters) - Oil prices climbed marginally on Tuesday as the U.S. government forecast record global petroleum consumption next year and as the dollar hovered at seven-month lows. Thursday's data "could easily clarify the direction of the financial and oil markets for weeks to come", said Tamas Varga of oil broker PVM. A weaker dollar can boost demand for oil, as greenback-denominated commodities become cheaper for holders of other currencies. But analysts said a revival of Chinese demand may only give oil prices limited support under downward pressure from the global economy. Separately, U.S. stockpiles of crude oil and distillates were expected to have fallen last week, a Reuters poll showed.

LONDON, Jan 9 (Reuters) - Rallying oil prices ran out of steam just before the end of the year as investors turned cautious after two weeks of heavy petroleum buying. Hedge funds and other money managers sold the equivalent of 12 million barrels in the six most important petroleum-related futures and options contracts over the seven days ending Jan. 3. Light selling emerged after funds had purchased 103 million barrels over the preceding two weeks, according to position records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission. But global distillate inventories remain severely depleted after an unprecedented drawdown between the middle of 2020 and the middle of 2022. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

U.S. West Texas Intermediate (WTI) crude futures rose $1, or 1.31%, to $76.19 after climbing 90 cents on Monday. Oil prices have been buoyed by U.S. plans announced last week to buy up to 3 million barrels of oil for the Strategic Petroleum Reserve after this year's record release of 180 million barrels. A weaker dollar has also supported prices, making oil cheaper for those holding other currencies. "The oil demand outlook will be key for how high crude prices can go," he said, adding that clarity on that could prove elusive given mixed signals on the reopening of China's economy. While China has been relaxing pandemic restrictions, a surge in COVID-19 cases has been bearish for oil markets because of uncertainty over the country's economic recovery, said CMC Markets analyst Tina Teng.

☆ Oil prices edge higher; China COVID surge limits gains
▼ + stars: | 2022-12-20 | by ( Isabel Kua | ) www.reuters.com time to read: +2 min

SINGAPORE, Dec 20 (Reuters) - Oil prices inched higher on Tuesday, supported by a softer dollar and a U.S. plan to restock petroleum reserves, but gains were capped by uncertainty over the impact of rising COVID-19 cases in top oil importer China. U.S. West Texas Intermediate (WTI) crude futures rose 32 cents, or 0.4%, to $75.51 a barrel, after climbing 90 cents in the previous session. Oil prices have been buoyed by a U.S. plan announced last week to buy up to 3 million barrels of oil for the Strategic Petroleum Reserve following this year's record release of 180 million barrels from the stock. A weaker greenback has also supported prices, making oil cheaper for those holding other currencies. U.S. crude oil stocks were expected to have dropped last week by about 200,000 barrels, while gasoline and distillates inventories were seen higher, a preliminary Reuters poll showed on Monday.

SINGAPORE, Dec 20 (Reuters) - Oil prices edged up on Tuesday, supported by a softer dollar and a U.S. plan to restock petroleum reserves, but gains were capped by uncertainty over the impact of rising COVID-19 cases in top oil importer China. Oil prices have been buoyed by a U.S. plan announced last week to buy up to 3 million barrels of oil for the Strategic Petroleum Reserve following this year's record release of 180 million barrels from the stock. A weaker greenback has also supported prices, making oil cheaper for those holding other currencies. While China has been relaxing pandemic restrictions, the surge in COVID-19 cases has been bearish for the oil markets due to uncertainties about the country's economic recovery, said Tina Teng, an analyst at CMC Markets. U.S. crude oil stocks were expected to have dropped last week by about 200,000 barrels, while gasoline and distillates inventories were seen higher, a preliminary Reuters poll showed on Monday.

The combined position has been cut to just 358 million barrels (12th percentile for all weeks since 2013) down from 579 million barrels (47th percentile) on Nov. 8. Fund managers sold NYMEX and ICE WTI (-5 million barrels), Brent (-4 million), U.S. gasoline (-5 million), U.S. diesel (-11 million) and European gas oil (-5 million). The net position in U.S. diesel and European gas oil was cut to 49 million barrels (41st percentile) from 75 million barrels (62nd percentile) on Nov. 8. Bullish long positions outnumbered bearish short ones by a ratio of 2.92:1 (52nd percentile) down from 5.40:1 (81st percentile) four weeks earlier. The extremely low level of hedge fund positions in crude has created upside price risk if and when managers attempt to rebuild bullish positions.

U.S. distillate fuel oil stocks increased by six million barrels over the seven days ending on Dec. 2, according to data from the U.S. Energy Information Administration (EIA). Distillate inventories have risen by a total of 13 million barrels over the eight weeks since Oct. 7 (“Weekly petroleum status report”, EIA, Dec. 7). Distillate inventories have accumulated at a time of year when they would normally be depleting, a signal the market balance has shifted decisively. Stocks depleted by an average of six million barrels over the same period in the ten years before the COVID-19 pandemic. Net distillate exports have slowed to around 1.0 million bpd from 1.4 million bpd in September, implying foreign consumption also slackened.

China, Russia's top oil buyer, has not agreed to the price cap. The light sweet crude is favoured by Chinese refiners due to their proximity and the oil's high middle-distillates yield. At current Brent levels, the $6 discount implies a price of $68 a barrel including freight and insurance costs. "They (independent plants) don't really care about the price cap. With the price cap in place, China, India and Turkey could have more bargaining power, the analysts added.

Here is why:DEPRESSED DEMAND FOR FUELSChina is the world's largest crude importer and second- largest oil consuming nation, second only to the United States. But in 2022, strict government intervention to contain coronavirus cases starkly reduced industrial and economic output as well as demand for travel. China's measures depressed oil demand by as much as 30% to 40% in China, according to analyst estimates. Overall economic activity also declined across the globe, most notably in China but also in the United States. The market's rally was also built in part on fears that a series of sanctions imposed on Russia by European nations and the United States would throttle that nation's supply.

Crude inventories (USOILC=ECI) fell by 5.2 million barrels in the week to Dec. 2 to 413.9 million barrels, a decline that far exceeded analysts' expectations in a Reuters poll for a 3.3 million-barrel drop. Meanwhile, U.S. crude production rose to 12.2 million barrels per day, highest since August. Crude stocks at the Cushing, Oklahoma, delivery hub (USOICC=ECI) fell by 373,000 barrels in the last week, EIA said. Refinery crude runs (USOICR=ECI) fell by 53,000 barrels per day in the last week, EIA said. Net U.S. crude imports (USOICI=ECI) rose by 1.49 million barrels per day, EIA said.

☆ Explainer: Europe set to import banned Russian diesel without knowing
▼ + stars: | 2022-12-07 | by ( Rowena Edwards | ) www.reuters.com time to read: +6 min

The European Union banned Russian crude imports from Dec. 5 and will ban Russian oil products from Feb. 5, as it attempts to deprive Russia of oil revenues. Blending Russian diesel elsewhere with a non-Russian equivalent would not change its origin, while refining Russian Urals crude into diesel elsewhere would. Russian diesel is likely to be delivered to and re-exported from countries such as India and Turkey, market sources said. Europe has already started to replace Russian diesel imports with refined product from the Middle East, but analysts also expect India to refine more Urals and increase diesel exports to Europe. Many of the larger oil companies, including BP (BP.L) and Shell have self-imposed sanctions on Russian oil and oil products.

Extreme backwardation implied traders expected the balance to remain tight, with a further drawdown of already depleted inventories, and more upward pressure on oil prices. In late November, after consultations with traders, the U.S. Treasury published regulations signalling a relatively relaxed approach to enforcement (“Guidance on implementation of price cap policy”, OFAC, Nov. 22). Following last-minute discussions, on Dec. 2 the cap was set at $60, with a commitment to review it by mid- January 2023 and every two months thereafter (“G7 agrees oil price cap”, European Commission, Dec. 3). SETTING THE PRICE CAP LEVELIn setting a price cap for Russia’s crude and products, U.S. and EU officials have been confronted by a menu of policy options and other considerations. Related columns:- Investors dumped Brent in anticipation of relaxed oil price cap (Reuters, Dec. 5)- Global recession a bigger risk to Russia’s oil revenue than price cap (Reuters, Nov. 11)- Recession would make tough oil sanctions on Russia more likely (Reuters, July 14)- Oil market confronts U.S. and EU policymakers with unpalatable choices (Reuters, June 29)John Kemp is a Reuters market analyst.

In real terms, monthly average prices have been between the 76th and the 98th percentile for all months since the turn of the century. Chartbook: U.S. distillate suppliedMANUFACTURING SLOWSMost distillates are used in freight transportation, manufacturing, construction, farming, mining, and in oil and gas production. Distillate consumption is therefore highly sensitive to changes in the business cycle, especially the manufacturing and freight sectors. The slowdown in distillate consumption has been close to what would be expected based on the deceleration in manufacturing. Reduced distillate use would be consistent with an unusual increase in distillate fuel oil inventories reported over the last seven weeks in weekly surveys conducted by the EIA.

In the ten years before the pandemic, distillate inventories declined by an average of more than 11 million barrels over the same period. Between 2010 and 2019, seasonal drawdowns ranged from ranged from as little as 7 million barrels to as much as 21 million barrels. Stocks are still 21 million barrels (-16% or -1.25 standard deviations) below the pre-pandemic five-year seasonal average. But the deficit to the seasonal average has narrowed from 34 million barrels (-24% or -2.05 standard deviations) on Oct. 7. Chartbook: U.S. distillate inventoriesPRICE RESPONSEThere is some evidence high refining margins and prices for diesel and other middle distillates are restraining consumption.

[1/2] Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. In the most recent week, purchases were concentrated on the crude side in NYMEX and ICE WTI (+19 million barrels) and Brent (+10 million). There was smaller buying in U.S. gasoline (+7 million barrels) and U.S. diesel (+4 million) and no change in European gas oil. As a result, the combined crude position has climbed to 443 million barrels (39th percentile for all weeks since 2013), up from 314 million barrels (10th percentile). Related columns:- Hedge funds tempted back into crude oil market by limited supply (Reuters, Nov. 7)- Oil funds trapped between low inventories and slowing economy (Reuters, Oct. 31)- Oil investors on defensive as recession forces intensify (Reuters, Oct. 24)- OPEC⁺ cut draws hedge funds back into the oil market (Reuters, Oct. 10)John Kemp is a Reuters market analyst.

LONDON, Nov 11 (Reuters) - Russia's oil export revenues are at much greater risk from a global economic recession than the price cap being planned by the United States and the European Union. Sanctioned petroleum could only be traded freely below the price cap while unsanctioned petroleum could be traded at any price, including prices well above the cap. If the crude cap is set at $60-65 per barrel, while unsanctioned crude trades at $120, the incentives for circumvention will be enormous. Recession and price capping turn out to be complementary approaches rather than substitutes for reducing Russia’s oil revenues. RECESSION AND ALTERNATIVESIn the event of a recession, consumption of crude and diesel would be hit, reducing the call on Russia’s crude exporters and refineries.

The National Bureau of Economic Research (NBER)’s authoritative Business Cycle Dating Committee itself uses a two-part classification – “expansion” and “contraction”. Growth in business activity tends to accelerate and decelerate; outright declines in the level of activity are relatively rare. UNDECLARED RECESSIONSThe NBER’s Business Cycle Dating Committee formally declared only six recessions between 1980 and the end of 2020. They were periods of little or no growth in an otherwise uninterrupted business cycle expansion and tend to be forgotten. Mid-cycle slowdowns also reset the economy by easing capacity constraints and relieving upward pressure on prices and wages.

The previous four weeks saw two large purchases (+62 million and +47 million barrels) and two large sales (-34 million and -50 million barrels) as investor sentiment see-sawed. The mixed picture continued last recent week, with heavy buying of Brent (+29 million barrels), and smaller purchases of NYMEX and ICE WTI (+6 million) and U.S. gasoline (+6 million). But that was partly offset by small sales of U.S. diesel (-4 million) and European gas oil (-2 million). But uncertainty is high and confidence is low, with a net position of just 503 million barrels (33rd percentile for all weeks since 2013). Related columns:- Oil investors on defensive as recession forces intensify (Reuters, Oct. 24)- OPEC⁺ cuts attract funds back to oil market (Reuters, Oct. 17)- Diesel’s gloomy message for the global economy (Reuters, Oct. 14)- OPEC⁺ cut draws hedge funds back into the oil market (Reuters, Oct. 10)- John Kemp is a Reuters market analyst.

The dollar's weakness added support, as the greenback's strength of late has been a notable factor inhibiting oil market gains. U.S. West Texas Intermediate (WTI) crude rose $2.59, or 3%, to $87.91. Crude exports rose to 5.1 million barrels a day, the most ever, dropping net U.S. crude imports to their lowest in history. Oil analysts anticipate supply will tighten in coming months after that move, and as Europe is expected next month to ban oil imports from Russia and restrict Russian shippers from the global shipping insurance industry. "Until 2024 we believe oil price will be strongly influenced by the availability of tankers that are willing to transport Russian oil rather than global supply-demand fundamentals, keeping oil price elevated," JP Morgan analysts wrote.

Hedge funds and other money managers sold the equivalent of 50 million barrels in the six most important petroleum futures and options contracts in the week to Oct. 18. Sales were the fastest for three months and came after purchases totalling 109 million barrels over the two previous weeks. But there was continued buying of U.S. diesel (+4 million barrels) and European gas oil (+2 million), extending the pattern from earlier in October. Related columns:- OPEC⁺ cuts attract funds back to oil market (Reuters, Oct. 17)- Diesel’s gloomy message for the global economy (Reuters, Oct. 14)- OPEC⁺ cut draws hedge funds back into the oil market (Reuters, Oct. 10)- Oil investors ready for recession (Reuters, Oct 3)- Hedge funds dump distillates as recession risks intensify (Reuters, Sept 26)John Kemp is a Reuters market analyst. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

LONDON, Oct 19 (Reuters) - Global freight volumes have begun to fall as overall consumer and business spending slows and the composition rotates from merchandise back to services after the pandemic. Chartbook: Global freight and manufacturing activityMANUFACTURING STALLSThe slowdown will gradually unblock supply chains and ease some of the intense upward pressure on merchandise prices that has occurred since mid-2020. The World Trade Organization forecasts merchandise trade will increase by just 1.0% in 2023 after rising 3.5% in 2022 (“Trade growth to slow sharply in 2023”, WTO, Oct. 5). The forecast growth in world merchandise trade volumes next year would be among the slowest rates in the last 40 years. The slowdown in industrial output and freight has already been underway for at least the last 3-6 months in most countries.

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