Commodities Update: Strong Russian Oil Flows to China and Volatility in European Gas Market
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The Commodities Feed: Strong Russian oil flows to China
Oil prices remain rangebound, with demand concerns continuing to put a cap on the market. European gas prices saw further strength yesterday, despite fundamentals still looking comfortable.
Energy - China imports record volume of Russian crude
The oil market continues to trade in a fairly rangebound manner. OPEC+ action from several weeks ago has done little to propel prices higher and demand concerns continue to put a cap on the market. In recent weeks there has been increasing concern over China’s demand outlook, despite Chinese oil demand indicators looking fairly good up until now. China’s National Petroleum Corporation (CNPC) now expects domestic oil demand to grow by 3.5% YoY in 2023, this is lower than the 5.1% growth that was forecast back in March. China’s demand outlook is crucial for the global market, given that the bulk of global demand growth this year is expected to be driven by China. Significantly weaker Chinese demand would also mean that the global oil balance would not be as tight as currently expected over the second half of 2023.
Russian seaborne crude oil exports edged lower over the last week although, at more than 3.5MMbbls, exports are still above pre-war levels. As widely known, China and India continue to pick up large volumes of Russian oil. The latest trade data from China shows that Chinese crude oil imports from Russia in May hit a record high of 2.3MMbbls/d, up 32% MoM and 15% higher YoY.
The volatility seen in the European gas market last week has spilled over into this week with TTF rallying almost 11% yesterday. Warmer weather and recent Norwegian outages have propelled prices higher. Recent price action shows that the market remains extremely sensitive to supply/demand developments. However, European gas storage is very comfortable at around 74% full at the moment, and we suspect storage will basically be full well ahead of the start of the next heating season. Assuming no supply shocks, this suggests we should see downside in natural gas prices over the summer months.
As for the calendar today, it is fairly quiet when it comes to energy markets. The API will be releasing weekly US inventory data later in the day. This will be followed by the EIA's weekly report on Thursday. Both of these releases are delayed by a day due to a US holiday earlier in the week.
