$90 Oil, Looking to $100?: China’s Price Hike as Inventories Fall

Except for a brief spell on Monday, crude oil prices have been rising steadily from around $88.50/barrel to nearly $91/barrel on the NYMEX. That’s a rise of more than 2.8% in less than three days. The rise appears to be based on an expectation that demand for the black stuff is picking up.

If that’s the case, then this morning’s report from the US Energy Information Administration should continue to push crude prices up. The EIA reports that crude imports rose an average of 1.1 million barrels/day last week and commercial inventories fell by 5.3 million barrels from the previous week. The DOE data showed a draw to crude stockpiles.

Gasoline inventories increased by 2.4 million barrels last week, and total petroleum products supplied averaged 19.7 million barrels/day, up 4.1% from the same period a year ago. Demand for gasoline averaged 9.2 million barrels/day, up 1.8% from a year ago.

Platts reported yesterday that analysts were expecting a drawdown of 2.4 million barrels in crude oil stocks, less than half the actual number.

A brighter outlook for the US economy combined with colder temperatures are the likeliest candidates for the drawdown in crude stocks and rising prices prices for crude in the US.

At the same time, Chinese officials have raised the price of refined products in the country by 4%. Platts estimates that Chinese demand in November averaged 9.3 million barrels/day. Demand is expected to continue growing in China, and the government is raising prices now in an effort to curb the growth in demand.

In Beijing, the price of a liter of gasoline has risen to an all-time high of 7.17 yuan/liter, or around $4/gallon, according to Caixin.  The government is fighting an unexpectedly high inflation rate, recently reported at 5.1%. Exactly how higher prices for gasoline are expected to help cool down the country’s inflation is unclear. The hope must be to dampen demand, thereby reducing imports. But the country’s economy is still expanding rapidly and there’s no reason to expect Chinese consumers to use less gasoline. The government continues its subsidies to farmers and other sectors of the economy that take a bigger hit from the rising gasoline prices.

Paul Ausick