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China Sourcing Update: Energy Costs (Apr 2017)

  1. Crude prices fluctuate sharply during mid-April to mid-May

    In line with the movement of global crude prices, China’s crude prices plummeted during mid-April to early May and picked up afterwards. For example, the Daqing2 crude price fell from US$ 49.3 per barrel on 12 April to US$ 42.0 per barrel on 5 May, the lowest level since late November 2016, before rebounding to US$ 45.8 per barrel on 16 May (see exhibit 1).

    The main reasons for the plunge in global oil prices during mid-April to early May were the easing of geopolitical tensions over Syria and North Korea, and investors’ renewed concerns about the global oil supply glut. A rising oil output in the US continued to undermine the positive impacts of the output cut led by member countries of the Organization of the Petroleum Exporting Countries (OPEC) and Russia on crude prices. According to the US Energy Information Administration (EIA), the US production of crude oil expanded to its recent peak of 9,293,000 barrels per day in the week ending 28 April 2017, compared with 9,235,000 barrels per day in the week ending 7 April 2017.

    Crude prices rebounded sharply during early to mid-May as member countries of the OPEC and Russia suggested that the oil output cut could be extended into March 2018, and data from the EIA showed that commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) in the US fell more than expected as at 5 May.

    Going forward, we expect global oil prices to fluctuate around the current low levels in the near future as it is still doubtful as to whether the oil output cut can significantly mitigate the global supply glut of crude oil amid a rising oil production in the US.

 

Content provided by Fung Business Intelligence
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