China Refineries: China's refinery throughput in November rose for the first time in eight months, driven by economic stimulus measures that boosted manufacturing and oil demand. Refiners processed 58.51 million metric tons of crude oil, averaging 14.24 million barrels per day (bpd), a 0.2% increase from the previous year. This uptick marked a reversal from consecutive declines since April and was an improvement over October's 14.02 million bpd. Stimulus packages from Beijing supported industrial activity, particularly diesel demand, and improved operating rates among independent refiners. Additionally, China's industrial output growth accelerated slightly in November, reflecting stronger manufacturing and services sectors.
Iranian Oil: The price of Iranian crude oil sold to China has surged to its highest level in years, driven by fresh U.S. sanctions that have reduced shipping capacity and increased logistics costs. These rising prices, along with those of Russian crude, are creating challenges for independent Chinese refiners, who account for about 20% of China's oil demand. Some refiners are shifting to non-sanctioned oil supplies from the Middle East and West Africa to meet winter and pre-Lunar New Year demand. Discounts for Iranian crude have narrowed significantly, with Iranian Light crude's discount shrinking to about $2.50 per barrel against Brent, compared to nearly $4 in early November. In November, China's imports of Iranian crude fell to a four-month low of 1.31 million barrels per day, partly due to tighter shipping capacity and stricter sanctions on vessels involved in transporting Iranian oil.
Russian Tanker: A Russian oil tanker, the Volgoneft 212, split apart during a heavy storm on Sunday in the Kerch Strait, spilling oil into the sea, while a second tanker, the Volgoneft 239, was also in distress after sustaining damage. The Volgoneft 212, which had 15 crew members on board, sank after splitting in half, resulting in one fatality and 12 people being evacuated, with two in serious condition. Russian investigators opened two criminal cases to examine potential safety violations linked to the incident. The storm caused significant damage to the 136-meter Volgoneft 212, which was built in 1969 and had run aground. Meanwhile, the 132-meter Volgoneft 239, built in 1973, was left drifting after sustaining damage, with 14 crew members aboard. Official statements did not provide details on the extent of the spill or why one of the tankers sustained such serious damage.
Market Overview: Oil futures declined from their recent highs on Monday, pressured by weaker-than-expected consumer spending in China, the world's largest oil importer. U.S. West Texas Intermediate crude fell by 0.91% to $70.64, retreating from its highest close since November 7. While Chinese industrial output grew slightly in November, retail sales were slower than anticipated, putting pressure on Beijing to implement more stimulus amid the challenges posed by U.S. trade tariffs. UBS analyst Giovanni Staunovo noted that weaker Chinese economic data was weighing on crude prices, with market participants awaiting further economic stimulus plans. The uncertainty around China's economic outlook, coupled with OPEC+'s decision to delay higher output until April and anticipation of the U.S. Federal Reserve's interest rate decision, contributed to the market's cautious stance.
Recent crude oil production in the U.S. has remained strong, with output averaging around 12.9 million barrels per day (bpd) in recent months, close to pre-pandemic levels. The surge in production has been largely driven by shale oil, particularly from the Permian Basin in Texas and New Mexico. However, U.S. production growth has slowed slightly in the second half of 2024 due to factors such as high operational costs, labor shortages, and a slowdown in drilling activity. Despite this, the U.S. remains the world's largest producer of crude oil, benefiting from technological advances in hydraulic fracturing and horizontal drilling. The Biden administration's focus on energy security and the push for more green energy initiatives has also influenced future oil production strategies.
Oil futures fell from their highest levels in several weeks on Monday, pressured by weak consumer spending in China and investor caution ahead of the U.S. Federal Reserve's interest rate decision. U.S. West Texas Intermediate crude settled at $70.71 a barrel, down 58 cents, after reaching its highest close since November 7. Last week, oil prices had risen due to expectations of tighter supply from additional sanctions on Russia and Iran, alongside hopes that lower interest rates would boost demand. However, slower-than-expected Chinese retail sales put pressure on Beijing to increase economic stimulus amid ongoing trade tensions with the U.S. The Chinese economic outlook also influenced OPEC+ to delay plans for higher output until April, with experts expressing concern about a lack of demand growth for crude oil.
