The Brent crude price retreat proved short-lived as expected. Brent crude oil crossed $86/bbl – continuing the bull streak for the third week in a row. Western media has been pinning hopes on China’s slower than anticipated economic growth, but China has been responding with resilient demand. The way Chinese government has shown the resolve to not let the momentum slip away by slashing interest rates – tells it would not let demand destruction happen this soon after opening up from zero-Covid policy it held for so long.
The biggest surprise was thrown by the US crude stockpile. As per latest data released by American Petroleum Institute, the weekly crude inventory drawdown stood at a staggering 11.5 million barrels. This is four times higher than the previous week’s drawdown – and the biggest weekly drawdown in over two years. The Strategic Petroleum Reserves continue to be low – fueling more bullish sentiments as the SPR sit at a 40-year low.
On the other hand, Saudi Arabia continues to show absolute resolve to its earlier stated position of keeping the oil market balance favorable to the member countries. October prices for Saudi refined products are expected to be benchmarked even higher – as continuation of production cut down policy by Saudi led Opec, backed by Russia – is a given for the rest of 2023.
The Asian crude spread is getting higher every week, the refinery margins are back to levels seen towards the end of 2022 rally (highest in over a year), and demand from Asian countries remains firm. A weakening US dollar has added to the crude oil strength. The threat from hurricanes in the US has increased risk levels of supply disruption –explaining the record weekly draw downs.
Pakistan can only play the waiting game of sitting on the fence and hoping things turn favorable. But what has transpired so far, especially Opec’s mood to keep the supply tight – means the wait could stretch beyond 2023. With the US dollar reaching new highs, retail petroleum prices are all set to reach the Rs300/ltr barrier tomorrow. Imported gas will become dearer as Pakistan’s pricing slope is dependent on three-month Brent average. There is no respite in the offing as Brent and all other oil grades continue to operate in an imbalanced market – dictated by supply curbs.
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