A splash of cash in China is giving Brent crude a bump. This comes as the International Energy Agency (IEA) lowers China’s demand expectations yet raises demand globally. The Chinese economy is in focus and it its new stimulus could offset fears about weaker oil (NYMEX:CLG14) demand. The IEA also warns that U.S. oil production growth could hit a wall.
China, worried about a cash crunch, surprised the market by infusing cash into a banking system that saw a sharp spike in interest rates as demand for cash increased ahead of the Chinese’s New Year. The Chinese government is having trouble balancing deleveraging without tanking the Chinese economy in the process. They reportedly added as much as $42 billion to the interbank system in an effort to avoid panic and not harm economic confidence.
That could increase confidence in Chinese oil demand as well. The IEA lowered demand for china as they revised up global oil demand for 2013 by 130 kb/d, to 91.2 mb/d, on stronger‐than‐expected 3Q13 OECD demand growth of 320 kb/d. They say that global demand is now seen advancing by 1.2 mb/d in both 2013 and 2014, to reach 92.4 mb/d in 2014.
On the supply side, IEA looks to Iran and worries about the U.S. The United States continued its "relentless rise" in crude oil production in 2013, exceeding even the most bullish of expectations, yet if the U.S. does not lift its ban on oil exports, we could hit a brick wall. The Wall Street Journal reports that the IEA warns, "The growing volumes of light tight oil that cannot leave North America are increasingly posing a challenge to the industry, putting the spotlight on the U.S. crude oil export ban," the IEA said in its monthly oil market report. For now, refinery, pipeline and crude rail capacity in the U.S. has expanded rapidly to accommodate the extra supply. U.S. refineries processed more oil than they have in eight years in December and exports to Canada have increased to around 155,000 barrels a day, according to the IEA. However, production is expected to continue to grow, with output forecast to rise by 780,000 barrels a day this year. "Although there appears to be room in the market to accommodate further supply expansion in 2014 without any immediate change in export regulations, how long this can continue is open to debate," the IEA said in its monthly report on the oil market.
The IEA says that U.S. demand has been particularly strong, with 2013's growth projected at 2.1%, a three-year high. This has helped offset a slowdown in oil demand growth in China, the world's second-largest oil consumer.
•The estimate of 4Q13 global oil demand was raised by 135 kb/d on unexpectedly strong U.S. deliveries, partly offset by curtailments in China and elsewhere. For 2013 as a whole, growth is estimated at around 1.2 mb/d, accelerating to 1.3 mb/d in 2014 as the economy continues to recover.
•Global supplies inched down by 25 kb/d month-on-month in December to 92.23 mb/d, with a seasonal fall in biofuel output cutting non-OPEC liquids supplies by 340 kb/d. Non-OPEC production grew by 1.63 mb/d year-on-year, partly offset by a 535 kb/d drop in OPEC crude oil supply.
•OPEC crude oil supply rebounded by 310 kb/d to 29.82 mb/d in December, reversing four months of decline. Saudi Arabia and the UAE led the gain, while Iraq was the only member to post a decline. Beleaguered Libya saw only a modest rise in December, amid government expectations of an imminent recovery in oil output.
•The forecast of global refinery crude runs for 1Q14 has been lifted by 110 kb/d since last month’s Report, to 76.8 mb/d, on the back of surging US crude runs. Global throughput growth for 1Q14 is assessed at 1.3 mb/d, up from only 0.3 m/b/d in 4Q13, as contractions in Europe ease and new Chinese and Middle Eastern capacity ramps up.
•Total OECD commercial oil inventories plummeted by 53.6 mb in November, their steepest monthly decline since December 2011, led by a plunge in crude oil and ‘other products’. Preliminary data for December indicate a further 42.5 mb draw in OECD inventories.