BoE rate hike, China data: Key factors driving crude oil markets next week

Key benchmarks Brent crude gained 94 cents to settle at $76.61 a barrel and US West Texas Intermediate (WTI) crude rose $1.16 to $71.78. Brent posted a weekly gain of 2.4 per cent and WTI rose 2.3 per cent. Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a July 19 expiry, settled higher at 0.75 per cent at ₹5,879 per bbl, having swung between ₹5,775 and ₹5,884 per bbl during the session on June 16, compared to their previous close of ₹5,835 per bbl.

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BoE rate hike, OPEC+ cuts and more: Key factors driving crude oil markets next week:

1.China refinery data:

Oil prices settled higher on the week over the hopes of growing Chinese demand. China’s refinery throughput rose 15.4 per cent in May to its second-highest total on record, as refiners brought units back online from planned maintenance and independent refiners processed cheap imports.

Kuwait Petroleum Corp’s CEO expects Chinese demand to keep climbing during the second half, according to news agency Reuters. The total refinery throughput in the world’s second-largest oil consumer was 62.0 million metric tons last month, according to data from the National Bureau of Statistics (NBS).

May’s production was the equivalent of 14.6 million barrels per day (bpd), up from 12.7 million bpd a year earlier, an increase flattered by a low base in 2022 reflecting the impact of extensive COVID-19 lockdowns. April throughput was 61.1 million metric tons, or 14.87 million bpd.

2. Russia’s oil price outlook:

Russian Energy Minister Nikolai Shulginov said it was “realistic” to reach oil prices of around $80 per barrel, reported Russian state news agencies. Shulginov also said Russian oil and gas condensate production is expected to fall by around 20 million tonnes (400,000 bpd) this year, reiterating Russia’s expectations.

 In 2022, Russia’s combined oil and gas condensate production rose to 535 million tonnes (10.7 million bpd). Condensate is excluded from the production quotas used by the OPEC+ producers group for Russia. Shulginov also said that Russia’s natural gas production has been behind official forecasts by up to 10 per cent.

3. OPEC+ supply cuts:

So far, oil prices have been jittery this year as sluggish economic data in China and the US, the global leading energy consumers, overshadowed output cuts by the leading oil producers at the OPEC+ group. Benchmark Brent oil is trading above $70 per barrel, having touched the $80 level in the second half of April, far below peaks of well over $100 last year. 

Saudi Arabia, OPEC cartel’s dominant member, will make deep production cuts of 1 million bpd starting from July, as part of a broader output-limiting OPEC+ deal as the group faces flagging oil prices and a looming supply glut. The rest of the OPEC producers agreed to extend earlier cuts in supply through the end of 2024.

4. BoE rate hike:

Capping oil price gains was the prospect of rising interest rates, which could slow economic growth. The Bank of England (BoE) is set to raise interest rates by a quarter of a percentage point next week. The European Central Bank lifted rates to a 22-year high on Thursday and the US Federal Reserve signalled at least a half of a percentage point increase by year-end. 

BoE Governor Andrew Bailey told a parliament committee last week that inflation was taking “a lot longer than expected” to come down and the labour market was “very tight”. Investors have been closely watching interest rates and commentary from Fed members.

5. Iran exports, US oil rigs:

In Iran, crude exports and oil output have hit new highs in 2023 despite US sanctions, adding to global supply when other producers are limiting output, according to Reuters. Also, US oil rigs fell by four to 552 last week, their lowest since April 2022, while gas rigs fell by five to 130, their lowest since March 2022, according to energy services firm Baker Hughes Co (BKR.O).

Updated: 18 Jun 2023, 08:43 PM IST