IEA raises demand estimates that Saudi Arabia refuses to increase production, and U.S. oil closes above US$81, the highest in nearly seven years

On Thursday (October 14), US crude oil futures rose 0.87 US dollars, or 1.08%, and settled at 81.31 US dollars per barrel, a seven-year closing high. Burundi oil rose 0.82 US dollars, an increase of 1%, to close at 84 US dollars per barrel, the highest settlement price since October 2018. The EIA inventory report shows that as of the week of October 8, US crude oil inventories increased by 6.088 million barrels, the highest level since August, and the new inventory was mainly concentrated in the Gulf of Mexico. However, inventories in Cushing, Oklahoma, fell by 1.968 million barrels. Cushing crude oil inventories fell the most since June, wiping out the increase in the previous two weeks, and inventories are currently at their lowest level since October 2018.

The US Energy Information Administration (EIA) weekly report shows that as of the week of October 8, refined oil inventories decreased by 24,000 barrels and gasoline inventories decreased by 1.958 million barrels. Last week, US domestic crude oil production increased by 100,000 barrels to 11.4 million barrels per day. The four-week average supply of US crude oil products was 20.734 million barrels per day, an increase of 12.5% over the same period last year. U.S. crude oil exports increased by 400,000 barrels per day to 2.514 million barrels per day last week.

Energy analyst Fernando Valle pointed out that with lingering energy supply concerns in Europe and Asia, the divergence of gasoline and diesel trends seems to continue in the coming weeks, which may stimulate the purchase of diesel as an insurance policy. However, congestion at US ports has a negative impact on diesel, as shipping demand is hampered by trade impacts. Continued consumer price inflation may begin to hurt gasoline demand, thereby exacerbating the impact after the busy summer. Refinery maintenance may help balance supply, but we still expect some growth in the oil market in the coming weeks, especially gasoline.

The financial blog Zero Hedge commented on US EIA data that last week, US crude oil inventories recorded the largest increase since March, which was the third consecutive week of rising. Gasoline and distillate had not fallen much. Diesel demand is the highest year since 2018. At the same time, natural disasters due to trucking demand forced the refinery to shut down due to prolonged power outages earlier this year, so stocks before winter were lower than usual. Due to soaring natural gas prices, it is expected that more refined oil will be used for heating this winter.

Saudi Arabia, the leader of the Organization of the Petroleum Exporting Countries (OPEC), ignored calls to speed up oil production on Thursday, saying that it has worked hard with allies and protected the oil market from violent price fluctuations in the natural gas and coal markets. OPEC+, formed by the oil-producing allies headed by OPEC and Russia, has done “excellent” work as the “so-called oil market regulator”. The natural gas market, coal market and other energy markets need a regulatory agency. This situation tells us that people need to copy and paste what OPEC+ has done and achieved.

When asked about the United States and other major oil-consuming countries calling for OPEC+ to further increase production to cool the rising crude oil prices, Prince Abdulaziz said, I have been telling people that we are increasing production. OPEC and its allies need to take a gradual and phased approach to increase supply. It will increase production by 400,000 barrels per day in November, and then continue to increase supply in the next few months.

The International Energy Agency (IEA) said on Thursday that the global energy shortage is expected to increase oil demand by 500,000 barrels per day, and may stimulate inflation and slow the global recovery from the new crown epidemic. In its monthly report, the IEA raised its estimate of global oil demand growth in 2022 by 210,000 barrels per day. It is currently estimated that the total global oil demand in 2022 will reach 99.6 million barrels per day, slightly higher than the level before the epidemic.

Royal Bank of Canada raised its Brent crude oil price forecast for 2022, and its previous target has been achieved at the beginning of the fourth quarter. RBC analyst Michael Tran and others pointed out that “the oil market is still in the early stage of a strong structural cycle spanning many years”, and demand will increase and supply tightening will occur simultaneously in 2022. The previous target of US$75 for Brent oil prices in 2022 was reached last week, so the target price for next year was raised to US$84. As the shortage of natural gas in Europe and Asia boosts demand for crude oil, the shortage of crude oil supply will intensify and keep the market strong in the coming months.

(U.S. Oil Hour Chart)