Fuel Oil Prices Fluctuate Amidst Stronger Demand
The International Energy Agency’s (IEA) positive outlook for stronger oil demand provided some support. Let’s delve into the recent developments impacting fuel oil prices and other key market trends.
Stronger Oil Demand Forecasted by IEA: The IEA’s latest oil market report presented a positive outlook, with a revision in global oil demand growth forecasts for 2023. The agency raised its projections by 200Mbbls/d to 2.2MMbbls/d, primarily driven by stronger non-OECD demand, particularly from China. The IEA also highlighted the impact of OPEC+ supply cuts, which are expected to create a deficit of nearly 2MMbbls/d in the second half of 2023.
Mixed Inventory Data and Macroeconomic Factors
US crude oil inventories unexpectedly increased by 3.69MMbbls, contrary to market expectations of a drawdown of 2MMbbls. On the other hand, refined product changes, including gasoline and distillate fuel oil, showed more favorable trends with a decline in stocks. Despite these inventory dynamics, macroeconomic developments continue to be the primary driver of oil prices in the current market environment.
China’s National Bureau of Statistics reported a 1.5% YoY and 3.2% MoM decrease in monthly crude steel production in April. Falling margins led domestic steel producers to reduce output, resulting in only 26.4% of steel mills operating profitably by the end of the month. In contrast, primary aluminum production saw a marginal YoY increase of 0.8% in April.
LME Copper Inventories Rise
LME copper inventories have been on an upward trajectory for seventeen consecutive sessions, reaching their highest level since January. On-warrant stocks also increased, while canceled warrants declined, indicating weakening demand. The cash/3m spread has shown a recent weakening trend, trading to a contango of over US$50/t.
France’s agriculture ministry expects a 7.6% YoY decline in domestic corn plantings, reaching the lowest level in over 30 years. Concerns over water shortages during the summer season led farmers to abandon water-intensive crops. Slow progress in planting, with only 59% of the crop in the ground as of 1 May, adds to the uncertainty surrounding corn production.
Uncertainty Surrounding the Black Sea Grain Deal
The upcoming expiration of the Black Sea grain deal on 18 May has created uncertainty in the wheat market. Russia has threatened not to extend the agreement unless its demands are met. The extension of this deal is crucial for Ukraine to achieve its grain export targets for the 2023/24 season.”
Analyzing Fluctuations in Fuel Oil Prices
Fuel oil prices experienced fluctuations amidst expectations of stronger oil demand, influenced by the IEA’s revised forecasts. Mixed inventory data and macroeconomic factors continue to shape market sentiment.
Meanwhile, developments in China’s steel and aluminum sectors, rising copper inventories, and the impact on agricultural commodities add further complexity to the commodities landscape. As the market awaits the outcome of the Black Sea grain deal, fuel oil prices remain subject to various factors, highlighting the ongoing volatility in the sector.
