Oil prices fall on demand trends and trade data - Rystad Energy

Brent futures started trading a tad higher this morning as a result of traders seeing a moderate buying opportunity after prices dropped yesterday following the Saudi selling price cuts.

Brent also got boosted by some positive news flow on Covid developments and stronger-than-expected Chinese trade data, both of which are interpreted as bullish for economic momentum and oil consumption ahead.

Despite the positive start in the day, Brent now seems to be cutting back the gains as trading moves from eastern to western business hours. Yet, there is a difference versus WTI in the extent of the loss.

Several countries in Asia Pacific are easing certain Covid-19 restrictions, such as Hong Kong, Thailand and New Zealand, while the South African variant slowed in August according to scientists, all supporting oil demand expectations this morning.

Overall, Europe has emerged as a “center of strength” for road fuels demand as the economies opened up over summer, where travelers have naturally taken more to the roads than the air during the travel season.

Nevertheless, European road fuels demand dropped by around 5%, or 3-400,000 bpd m/m in August, that had a slow start, from the recent peak in July according to our real-time traffic data.

However, recent news are positive for Brent as European traffic has been picking up by two percent over the past two weeks.

Robust gasoline demand and fairly low inventories in both sides of the Atlantic Ocean also lend support to light-sweet crude benchmarks such as Brent.

The other piece of support in the morning came from Chinese trade, where crude imports rose to a five-month high of 10.5 million bpd as independent refiners were allowed to step up buying amid new import quotas.

The question for the market is whether this trend in China’s crude imports will continue upwards in the ensuing months. That is a complicated matter which the market is trying to get right, as it also depends on government policies on quotas and use of strategic reserves.

For now, the Asian market is in a “semi-bullish mode” while awaiting new clues on the recovery of US’ production and refinery activity after the hit of Hurricane Ida.

This week’s US inventory report tonight from API will play a major role on pricing, as it will shed the first unofficial light on stock changes during the land-fall week of the Hurricane Ida.

For WTI, the Labor day weekend usually marks the end of the driving season in the US, so the market is moving to a lower-consumption mode for road fuels, with the trend being possibly behind the larger decline of the grade.

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