The Commodities Feed: Strong Chinese oil imports

The rally in oil seems to be running out of steam, despite further constructive data releases. Continued strength in the USD is likely providing some headwinds to the market.

Energy - LNG strike action set to start

The rally in the oil market appears to be running out of steam, at least for now, with ICE Brent settling a little under US$90/bbl yesterday and coming under some further pressure in early trading this morning. The continued strength in the USD will likely provide some headwinds, not just to oil, but to the broader commodities complex.

EIA weekly inventory data, which was delayed by a day due to a public holiday earlier in the week in the US, was fairly constructive. US commercial crude oil inventories fell by 6.31MMbbls over the last week, leaving inventories at a little under 417MMbbls - the lowest level since December. The larger draw was driven by strong crude oil exports, which increased by 404Mbbls/d WoW to 4.93MMbbls/d. Meanwhile, refinery run rates continue to creep lower as we move deeper into refinery maintenance season. On the product side, gasoline inventories fell by 2.67MMbbls to a little under 215MMbbls - levels last seen back in November. Gasoline inventories should start to edge higher as we move further out of the driving season, although we will likely have to wait until after refinery turnarounds to see more meaningful builds. Distillate fuel oil stocks increased by 679Mbbls over the week, which again will provide some comfort to the market as we head into the winter months, although distillate stocks are still well below the 5-year average.

The latest trade data from China yesterday was supportive. It shows that crude oil imports over August averaged 12.48MMbbls/d, up 21% MoM and 31% higher than year-ago levels. While we have seen stock-building over large parts of the year, refiners have also been operating at higher rates, due to stronger domestic demand as well as increased exports. Refined product exports over August totalled 5.89mt, up 23% YoY. This leaves cumulative refined product exports over the first eight months of the year at 42.51mt, up almost 43% YoY.

Natural gas prices could get a boost higher today with strike action at Chevron’s Gorgon and Wheatstone LNG facilities set to start today. This strike action was originally set to start yesterday but was delayed due to ongoing negotiations. However, this morning the Offshore Alliance has said that industrial action will commence today at 13.00 local time. The initial phase of action will see only partial strikes. However, this will escalate over time with rolling 24-hour strikes to commence from 14 September.