Crude oil imports into Asia surged in September. Normally such news would raise hopes for demand and therefore prices, but this time it is more complicated. And that has less to do with Asian demand than with European demand.Oil imports into Asia rose by more than 2 million barrels a day last month, according to Reuters’ Clyde Russell reported in his latest column, noting that most of it went to China and Singapore.
He then pointed out that China and Singapore underwent refinery maintenance in August and utilization rates increased in September. On the one hand, it is the normal preparation for winter. On the other hand, the EU has an embargo on Russian crude coming into force in less than two months, then a fuel embargo two months later.
Europe is already struggling with a shortage of diesel as it shuns Russian fuels before the embargo and global fuel supply remains limited. This contributed to fears of demand destruction by excessive prices, but also reinforced fears of a recession due to fuel shortages.
The United States may be able to increase its fuel shipments to Europe, according to executives of major commodities trading companies quoted in a recent report by Energy Intelligence, especially since Russian fuels will be redirected to other destinations, notably Asia and South America, satisfying part of the demand there. And some of these Russian fuels will go to Europe but will come from China.
It’s a somewhat ironic twist in the Europe-Russia story that Russian oil literally won’t stop flowing to Europe no matter what Europe does to stop that flow, even if it’s ready to stop it. pay full price. As fuel flows from India to Europe already show, the latter has no problem with Russian refined products as long as they do not come from Russia itself.
This will likely continue to happen because regardless of the ongoing geopolitical games, physical demand for petroleum products will likely remain robust until prices become prohibitive. Even then, the destruction of the application will not happen overnight. A case in point is France, where strikes have crippled more than half of the country’s refining capacity, and yet people are queuing to fill their tanks.
It’s a double irony that the European Union might need to rely on China for its winter fuel supplies. After all, like the US, the EU has also spoken out against China’s growing dominance in various global markets. He is not considered a friend in Europe. Yet it is a vital supplier of raw materials without which the EU will collapse.
Moreover, European countries might need to exploit this lifeline as soon as possible. Because strikes by refiners in France are not the only supply challenge. In fact, this month will see Europe’s diesel shortage worsen as refineries go into seasonal maintenance. This will take 1.5 million bpd of refining capacity out of the market. Added to the French strikes, with no immediate end in sight, the diesel supply situation in the EU is becoming quite strained, with limited fuel availability elsewhere as well. Except, that is, in China, at first sight.
Bloomberg noted in a recent report that Chinese refiners had just been granted the biggest fuel export quotas since the start of the year. One of the reasons for this is the growth of local demand still at half mast after all the confinements. The other possible reason is the prospect of greater fuel demand in Europe for the above reasons.
“As long as the Chinese economy remains weak and product inventories are high, refiners have an incentive to destock and export,” a researcher at the Oxford Institute of Energy Studies told Bloomberg.
It’s time for Europe to start hoping that the Chinese economy remains weak.
By Irina Slav for Oilprice.com
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