Risk Bias Reigns – September 25, 2022

Alaska North Slope crude stuck to the 90-plus range on September 21, sliding 87 cents to close at $90.55 a barrel. West Texas Intermediate fell $1.51 to close at $82.94 and Brent slipped 79 cents to close at $89.83.

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Bears continue to chip away at support away from oil prices amid a critical risk-on bias in financial markets, with the US Federal Reserve delaying a rate hike decision until September 21. The Fed raised interest rates by 75 basis points, and while the move was widely expected, oil prices hit two-week lows on the day.

The U.S. dollar has risen, causing more pain for economies that must convert domestic currencies to pay the dollar-denominated oil prices.

News from Asia also blew their minds.

The Asian Development Bank has cut its 2022 growth forecast for Asia, citing economic tensions in China due to the COVID-19 lockdowns, the Ukraine conflict and efforts to fight inflation, The Straits Times reported on September 21.

The forecast – which covers ADB’s 46 members from the Pacific Ocean’s Cook Islands to Kazakhstan in Central Asia – was cut to 4.3% from ADB’s April forecast of 5.2%. The region is expected to grow by 7% by 2021.

China’s growth forecast for 2022 has been cut to 3.3% from 5% as Beijing pursues a punishing zero-covid-19 strategy, the Straits Times reported.

“Risks are huge” for the region, ADB Chief Economist Albert Park said, adding, “A significant downturn in the global economy would seriously affect the region’s export demand.”

Fears of a slowdown in Asian and Chinese demand are a recurring theme in crude oil price action.

Traders now believe that China’s lockdown will eventually be lifted and domestic movement will return on land and air, with international air travel to China rising from current lows.

The sky opened wide. Even New Zealand, which was particularly isolated in its initial response to the coronavirus outbreak, has dropped requirements for international arrivals to be tested for COVID-19 before departure, and international visitors no longer need to provide proof of vaccination against the virus.

Interest in China

In its September Short-Term Energy Outlook, the US Energy Information Administration predicted that China’s petroleum consumption would peak in 2023.

China completed projects to expand refining capacity this year and has projects under development to expand domestic refining capacity next year to support increased consumption, the EIA said. China will continue to import crude oil and increase domestic production to meet expected consumption levels.

On the other hand, EIA predicts that Russian oil production will decrease in 2023 if EU economic sanctions are fully implemented.

In the September 21 release of the E.A.A.

“Russia is traditionally China’s second-largest source of crude oil, just behind Saudi Arabia, and imports from Russia have generally been on the rise, both in terms of volume and revenue,” the EIA said.

China’s crude imports from Russia It has grown from 8% of crude oil in 2011 (slightly less than 400,000 bpd) to 16% of revenue in 2021 (1.6 million bpd) and 21% in August 2022 (2.0 million bpd). , according to the EA, the total imports from Russia were 20% in June and 19% in July.

As China’s appetite for crude oil grows and Russia’s output declines as expected by the EAA, China will seek new sources of oil.

In its June 2022 release, the EAA said new projects, particularly in China and the Middle East, could add more than 4.0 million bpd of new capacity over the next two years.

“Many of these new refineries are located offshore and have the opportunity to easily export refined products that are not used domestically,” he said.

Conditions are strong for North Slope crude. As seen recently, China and its Asian neighbors have increased crude purchases, carrying Pacific cargoes that compete with ANS on the West Coast.

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