Russian Crude: Chinese and Indian refiners are seeking alternative crude supplies due to new U.S. sanctions targeting Russian oil producers and tankers, which are expected to limit shipments to major customers like Moscow's largest buyers. The U.S. sanctions, imposed on Russian oil producers and 183 vessels, aim to cut off revenue for Russia's war with Ukraine. As a result, these refiners are turning to Middle Eastern, African, and Brazilian crude, causing spot premiums for these sources to rise sharply. Despite the sanctions, India will continue receiving Russian oil booked before January 10, and refiners are also exploring more cargoes from regions like West Africa and Canada.
Chinese Crude Imports Shrink: China's crude oil imports declined by 1.9% in 2024, marking the first annual drop in two decades outside of pandemic-related disruptions, as weak economic growth and peaked fuel demand reduced purchases. The decrease in demand was driven by factors such as the rapid electrification of vehicles and a downturn in key sectors like property and exports. Refiners scaled back production due to depressed fuel demand and narrowing refining margins, with independent refiners in Shandong operating at lower capacities. Meanwhile, China's natural gas imports rose by nearly 10%, reaching a record high, while exports of refined fuel products fell 7.2% compared to 2023.
U.S. Rig Count: U.S. crude oil net rig count decreased by 2 rigs to 480 rigs for the week ended January 10. U.S. crude basins changed within “Other” basins (-1), and DJ-Niobrara (-1). U.S. oil rig count is lower by 2 rigs month-over-month and lower by 19 rigs year-over-year.
Market Overview: Oil prices continued to rise Monday morning, supported by new U.S. sanctions targeting Russian oil producers and tankers, which are expected to disrupt exports to major buyers like India and China. These sanctions, including measures against 183 vessels, are anticipated to severely impact Russian oil exports, pushing China and India to seek alternative supplies from the Middle East, Africa, and the Americas. The market is concerned about potential supply disruptions, with analysts predicting tighter supplies and increased shipping costs. Despite these sanctions, analysts believe OPEC+ has the capacity to offset any significant supply shortfalls, though Russia may need to resort to discounted oil or non-sanctioned tankers to navigate the new restrictions.
Heating Oil Analysis
Since the news broke last week regarding the new sanctions the U.S. would be imposing on Russia, ULSD has taken off gaining a little more than $.18 cents. The Heating Oil contract has tipped significantly overbought, but has continued to stay supported. If you look at the RSI (bottom blue) the current value is 79.2, anything over 70 is considered overbought and due for correction. So far, the contract has continued to move higher, despite the technical headwinds.
Oil prices rose about 2% to reach a four-month high on Monday due to expectations that U.S. sanctions on Russian oil will prompt India and China to seek alternative suppliers. The surge in prices also led to a significant rise in the premium of near-term contracts over longer-dated futures. Trading volumes for both Brent and WTI futures surged to their highest levels in months as market interest grew. The sanctions are creating supply fears, especially as many tankers ,previously used to ship Russian oil, are now anchoring off China and Russia. Meanwhile, the strengthening U.S. dollar, coupled with expectations of no interest rate cuts from the Federal Reserve in 2025, could dampen global energy demand.
