The price of the ICDX crude oil contract in the second week of November moved on a bearish trend or decreased by 3 percent, triggered by an increase in the daily Covid infection rate in China which showed a significant upward trend. The number of new daily infections which on November 6 reached 5,643 cases, jumped to exceed 10,000 cases, to be precise 10,729 cases on November 10, according to data reported by China's National Health Commission on November 11.
Also weighing on price movements, the Short Term Energy Outlook report released (8/11) by the Energy Information Administration (EIA) cut its forecast for world oil demand growth in 2023 by 320,000 bpd to 1.16 million bpd. Global oil inventories are also expected to decline by 1.2 million bpd in the first quarter of 2023.
Meanwhile, plans to limit price on Russian oil that will be implemented by the G7 countries and the European Union (EU) on December 5 has the potential to create logistical problems and environmental hazards. In the plan that involves shipping insurance services, there is a scenario for the insurer to withdraw protection for the cargo if, during a sea voyage, it is discovered that Russian oil is being traded above the price limit. The buyer's refusal to accept the problematic cargo will force oil-laden tankers to be left stranded offshore, raising safety concerns and the risk of oil spills in countries near the stranded tankers, two senior oil industry executives said (10/11) .
OPEC Revised Down Oil Market Projections
In the monthly oil market report released (14/11) by OPEC, global oil demand for 2022 and 2023 was revised down by 100 thousand barrels to 2.5 million bpd and 2.2 million bpd respectively. OPEC also added that its production forecast for the final quarter of this year was also lowered by 520 thousand barrels to 28.9 million bpd, due to the weaker world economy and China's stringent handling of Covid measures. The alliance of 23 oil-producing countries is scheduled to meet again on December 4 in Vienna to discuss production policies for early 2023.
China Reduces Purchases of Russian Oil
China's refiners began scaling back purchases of Russian oil in December and are paying a lower premium in the face of imminent European Union (EU) sanctions and uncertainty over a price cap plan initiated by the G7. Quoting a trader source (14/11), it said that only about 5 to 7 cargoes of Russian oil for December delivery to China had been sold, compared to an average of around 30 cargoes for shipment every month from Russia to China. The source also added that the premium paid was around $1.70 to $1.90 per barrel over February's ICE Brent price, down from the premium for November cargoes of around $2 per barrel, and two weeks ago's premium of around $2.70 per barrel.
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Source: ICDX Research