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Oil demand continues to healthily outpace supply

Crude oil prices averaged about 1 percent higher on a week-over-week basis, as investors remained focused on the strength of the global oil supply and demand fundamentals ahead of winter.

Prices rose the most amid signs of a fast-tightening US oil market, specifically at Cushing, and a large drop in gasoline stocks. However, rising coronavirus disease (COVID-19) cases in several countries, concerns about global economic growth, and a larger-than-expected build in US crude stocks last week limited gains.

Crude prices retreated, though they remained firm after the Energy Information Association reported a larger-than-anticipated build in US crude oil stocks, which eased concerns about a tightening crude oil market and prompted investors to take profit from bullish long positions. The rise in total US crude stocks offset a drop in crude stocks at Cushing and the decline in US gasoline and distillates stocks.

Prices have been trading above $80 per barrel, a level that secures significant profits for US shale producers, but there is no sign that this will lead to a significant increase in investment in the shale sector. It seems that US shale production is still being mainly sustained by the activation of drilled but uncompleted wells relative to new drilled wells.

However, the longer prices remain high, the more likely it is that US crude output could start to see growth again.

India’s crude oil imports in September rose 16 percent to a five-month high, government data showed, as a pick-up in economic activity and mobility led to higher fuel demand.

Liquefied natural gas imports into China have remained resilient, especially from long-term contracts, with utilization rates at key coastal terminals in excess of 90 percent.

Asian spot LNG prices declined marginally due to more cautious Chinese buyers, who have largely retreated from the spot market given forbiddingly high prices. The LNG market is balanced by newly reported supply disruptions, most recently from Bontang LNG, where feed gas constraints are expected to take up to one cargo a month off the market from November through mid-2022.

The vaccine success and reopening of social activities have enabled the US economy, and oil consumption, to flourish faster than in other regional markets, and production, hampered most recently by Hurricane Ida, has not been able to keep up with the pace of refinery intake.

Rising Indian gasoil demand, tighter supplies from China and the onset of seasonal refinery maintenance in the West, are set to keep gasoil prices well supported heading into the winter heating season.

Global refinery crude requirements are expected to pick up starting in November as refineries return from major turnarounds and respond to the market’s call to replenish product stock levels, given growing product tightness.

The US weather forecast is trending toward colder-than-average weather in November and would likely result in expectations for higher heating fuel demand in the upcoming days.

The oil price trajectory remains bullish as natural gas prices continue firm, a potentially cold winter awaits just around the corner, and oil demand continues to healthily outpace supply.
Source: Arab News

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