After hitting a three-week low on Monday, oil prices rose early on Tuesday as the market hopes that still resilient oil demand in the West would offset weakness in its top consumer and top global crude importer, China.
As of 9:23 a.m. EDT on Tuesday, the price of WTI Crude was at $67.32, up 1.26%, and Brent Crude was trading at $69.74, up 1.01% on the day.
On Monday, oil prices tumbled on concerns that the expanding targeted Chinese lockdowns and travel restrictions to fight the latest COVID outbreak would weigh on fuel demand in the world’s largest crude oil importer. Brent settled on Monday below the $70 a barrel mark, for the first time since July 20, when oil suffered a sell-off following OPEC’s deal to add 400,000 barrels per day (bpd) of oil to the market every month starting in August.
Oil rebounded on Tuesday after the Monday slump, with the belief on the market that despite this flare-up in COVID cases, oil demand will continue to accelerate in the coming months and tighten the supply-demand balances.
In addition, analysts say that the OPEC+ group is likely carefully watching the most recent price correction and, if need be, they will not allow oil prices to drop too much. OPEC+ is meeting on September 1 for their regular monthly gathering to discuss market developments.
“So, if we get to this meeting and there has been further price weakness, there is the real possibility that we see the group go back on their easing plan. It is for this reason that we believe that any downside in oil prices is fairly limited,” ING strategists Warren Patterson and Wenyu Yao said today.
Oil “has stabilized following a 10% correction driven by demand worries amid another surge in delta virus cases around the world. However, supporting the market is the belief demand will continue to accelerate and tighten into year end and 2022, and OPEC+ if needed will step in and support prices,” Saxo Bank said on Tuesday.
“Having found support ahead of the July low at $67.44, Brent crude may find resistance at $70.85 followed by $71.85,” the bank’s strategy team noted.
By Tsvetana Paraskova for Oilprice.com
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China’s crude oil imports in the first half of 2021 were already 2% higher than 2020 meaning that on average China has been importing 11.9 million barrels a day (mbd). I am sure that imports will average higher than 12.0 mbd in 2021 particularly with the end of refinery maintenance season. The proof is that China’s refineries broke records in the first half of 2021 and averaged 15.13 mbd—up by 10.7% from a year earlier. This always translates into rising volumes of crude oil imports.
The outlook for global oil demand and prices is bright despite a resurgence of new COVID cases with the global economy and China’s growing at 6.3% and 8.3% respectively and with the availability of billions of vaccines. So the recent decline in oil prices will be no more than a temporary one.
Moreover, OPEC+ is watching and assessing the global oil market and it will adjust its production plans if needed to ensure that neither a glut nor a deficit will emerge in the market.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London