Oil pares large weekly drop as concerns over demand linger

Bloomberg

Oil pared a large weekly loss as US employment figures allayed some concerns of a major hit to global consumption this year.
West Texas Intermediate climbed near $75 a barrel on Friday after the jobs data, but remained down almost 7% this week. Saudi Arabia reduced prices for crude sold to Asia and Europe in February, signaling concerns over the near-term outlook. China is battling a surge in virus cases after Covid-19 restrictions were lifted, though mobility is set to rise as the Lunar New Year holidays approach.
Crude’s weak start to the year has come as forward curves continue to signal signs of oversupply. The International Monetary Fund (IMF) warned this week that a third of the global economy could be in recession in 2023, while Federal Reserve Bank of St. Louis President James Bullard signaled that
US interest rates weren’t yet
sufficiently restrictive.
US jobs growth stayed solid last month and the unemployment rate fell while wage gains cooled, indicating a resilient labor market that nevertheless may give room for the Fed to further slow interest-rate hikes. The dollar dropped, also aiding crude on Friday.
Still, oil prices may exceed $140 a barrel this year if Asian economies fully re-open after Covid-related lockdowns, according to hedge fund manager Pierre Andurand.
Meanwhile, China is snapping up cargoes of crude that would normally head to Europe, spooking the continent’s physical oil traders who’ve just seen imports from Russia all but halt at a time when local demand is rising.
The world’s largest oil importer already bought 5 million barrels of mostly-Kazakh crude for collection from a port in the Black Sea next month, according to traders of the grade. In daily flow terms, it’s the most since at least the start of 2021.
That matters because the oil in question has been the preserve of European refiners, especially since the middle of last year when companies in the European Union cut purchases from Russia following the invasion of Ukraine. Physical traders report that Europe’s own demand is also strengthening, intensifying competition for barrels.
The impact on prices — expressed as premiums or discounts to benchmarks — has been bullish. And with China’s return from Covid still in early stages, it is a reminder of just how susceptible Europe could be to resurgent buying from the Asian country.
So-called CPC Blend crude, most of which comes from Kazakhstan, has rallied to a discount of $3 a barrel to Dated Brent, an international marker for physical oil transactions, according to traders. As recently as a month ago, it was at $8 below.
The signs of strength go beyond the Black Sea. Norway’s giant Johan Sverdrup stream is now fetching $3 to $4 a barrel below Dated, having been at a discount of more than $6 in early December.
There too, demand has shown signs of gaining. China’s Unipec bought at least 2 million barrels of Johan Sverdrup for January loading. Norway’s Equinor ASA also booked a supertanker to move 2 million barrels of the grade to Asia later this month. There may be more to come and February trading has yet to begin.