January 16, 2023

The Chinese economy continues to puzzle…

Oil markets had a buoyant week…. In fact, most markets had a buoyant week! Market moods are bullish across the board despite warning signs that oil prices are currently built on “shifting sands” and based upon unconfirmed and unreliable bullish data (especially from China)…. regardless of the uncertainties, (even a record build in American crude oil inventories week on week of 19 million barrels didn’t push buyers off track!) markets are prepared to run with optimistic growth numbers published this week (ignoring the bearish ones!) thus creating a positive mood.

First out of the traps was the announcement by the Chinese government of crude oil import awards to independent refiners for 2023 of 111.82 million metric tonnes, being the major part of a 132 million metric tonnes total import requirement… the balance between the two belonging to government-owned refineries.
However, the timing of China’s economic and crude demand recovery remains a puzzle and difficult to pinpoint, although it’s a reasonable call to say any “green shoots” won’t start appearing until the second quarter as predicted by Wood Mackenzie who commented…. “As China’s infection rate slows post-Chinese New Year, we see domestic oil demand rebounding. As the population hits the roads and the skies, our expectation is Chinese oil consumption in 2023 will increase by around 1.0 million b/d, an impressive performance considering Q1 demand is likely to contract by 190,000 b/d,” Gavin Thompson, Vice Chairman, Energy – Asia Pacific, at Wood Mackenzie, said on Thursday, and continued “Look for a particularly bullish Q2, with China adding 1.36 million b/d over the same quarter in 2022, the strongest growth in over a decade (excluding the post-Covid bounce) that will support higher prices,” However, this forecast seems overly optimistic, as do other expert forecasts suggesting that Chinese crude oil demand this year will be a record 16 million barrels per day at its peak!


The sting in the tail of any forecast for Chinese crude oil demand in 2023 will be determined by how well China can manage the renewed and savage return of the Covid virus after the lifting of the Covid zero strategy. Even this week, traders ignored Chinese government statistics reporting 59,938 Covid-related deaths from December 8th to January 12th, a figure considered to be “economical with the truth “! It is also worth mentioning that daily reported infections and fatality figures are now reported every 3 days rather than daily. To add to the Chinese puzzle, this week’s statistics on the state of the American and European economies surprised many by painting a picture that going forward things may not be as bad as has been reported for the last 11 months since the war in Europe began.
U.S. inflation data reported consumer prices falling for the first time in more than two and a half years.
As a result of both the Chinese and American news WTI is now flirting with the $80 per barrel threshold again while Brent has tipped a tad over $85.00 a barrel.
Despite the fragility of the figures and the likelihood of them changing again and again quickly in short time frames, there is a mood of optimism in the oil markets backed up by economic data suggesting the worst is behind us…. If only it was that easy!!

In other news……
LNG flows are better than anyone could have called 6 months ago. Europe’s desire to replace Russian pipeline gas has made it the premium market for liquefied natural gas worldwide and has seen global volumes of LNG imports rise 7% year-on-year to 409 million tons, the highest on record.

Trafigura has participated in the purchase of the Italian ISAB refinery, ….owned by Russian global trading company Lukoil. The deal is expected to be completed by the end of March … the purchaser, being G.O.I. Energy, a Cypriot company and backed by Trafigura, the selling figure is anticipated to be in the region of 1.5 billion euros.

The sale is subject to Italian government approval but that seems a formality given that Italy, as an EU member applying sanctions against Russia, is finding itself painted into a corner having a Russian-owned refinery importing Russian crude oil on its doorstep!! Trafigura also sold its 24.5% stake in India’s second-largest refinery Nayara to a relatively unknown Italian investment firm called Mareterra Group.

A violent explosion in a gas pipeline between Latvia and Lithuania on Saturday remains unexplained. Gas supply is still functioning via a spur line …. Authorities in both countries are carrying out an investigation to pin down exactly how this happened and whether it was an act of sabotage.

Despite all the difficulties of the last 11 months, it feels as though the oil markets have found their mojo again and feel more solid than they have in a while, however, February the 5th is looming large in the rearview mirror, and it remains to be seen how Europe copes without Russian diesel from that date onwards.


  • 2024
  • 2023
  • 2022
  • 2021
  • 2020