Oil prices gained on Friday as pressure signals in US markets increased following Hurricane Ida’s impact on offshore output.
Brent crude futures for November were up 63 cents, or 0.9 percent, to $72.08 per barrel as of 0624 GMT. West Texas Intermediate (WTI) oil futures in the United States traded at $68.65 per barrel in October, up 51 cents, or 0.8 percent. Brent is on track to lose money for the second week in a row.
On Thursday, both contracts fell more than 1% to their lowest since Aug. 26 after China said it would release crude oil reserves to the market via public auction for the first time.
China’s Crude Imports
This sale, along with depleted teapot import quotas, likely weighed on China’s crude imports this summer. Hence Goldman Sachs (NYSE: GS) analysts predict “limited further draws in China’s onshore crude inventories this year. Resumption of higher imports into year-end as demand picks up seasonally and following the recent COVID-19 outbreak.” China’s international crude futures are up 50% this year and up 80% year on year. In its four-sentence announcement, the agency made no mention of the volume or timing of the auctions.
According to traders and analysts, the ambiguous phrasing and lack of detail caused market watchers to misunderstand whether the auctions had already taken place or would take place in the future.
There has also been market speculation over unconfirmed oil reserve sales in July and August. Its sources familiar with China’s strategic reserves system declined to confirm or deny to Reuters. Instead, some expect prices to fall even further, to below $60,” said a refinery official in south China.
China has kept the location of its strategic reserves a closely guarded secret. The most recent public data for China’s SPR were released in 2017. The government announced nine crude oil storage bases with a total reserve capacity of approximately 238 million barrels. The company Energy Aspects estimated in early July that China’s SPR locations stored 220 million barrels of crude oil, enough for 15 days of use.
OPEC+ Will Intervene
When you reduce your buying of grains and metals, the sellers in the producing countries will usually allow prices to fall enough to recoup your losses. However, the opposite is likely to occur with the Organization of Petroleum Exporting Countries (OPEC) and its allies. When prices began to decline persistently and considerably, the alliance would band together to cut production, sending the market back up—often to a greater level than it had previously.
We’ll have to wait and watch how far the Chinese can go in this game, as well as how much tolerance the 23-nation OPEC+ has. That includes the 13-member Saudi-dominated OPEC and its ten oil-producing allies led by Russia, which will exhibit.
