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China Sourcing Update: Energy Costs (Aug 2017)

  1. Crude prices jump during mid-August to early September

In line with the movement of global crude prices, China’s crude prices fell in mid-August and rose sharply during mid-August to early September. For example, the Daqing crude price declined from US$ 47.1 per barrel on 10 August to US$ 44.7 per barrel on 17 August, and then soared to a six-month high of US$ 49.7 per barrel on 8 September (see exhibit 1).

Several factors were behind the surge in global oil prices during mid-August to early September. First, there were signs of an easing oil supply glut in the US. Despite a continued rise in US oil production to 9.5 million barrels per day in August, the US commercial crude inventories fell for eight consecutive weeks as of the week ending 25 August, according to data from the US Energy Information Administration.

Second, the number of active oil rigs in the US has declined in recent weeks, indicating that the growth in US production of crude oil is likely to decelerate in the coming months. According to Baker Hughes, a US-based oilfield services provider, the oil rig count in the US fell from a two-year high of 768 on 11 August to 756 on 8 September after having increased for 14 straight months.

Lastly, oil prices were also supported by supply disruptions in the US caused by Hurricane Harvey as well as in Libya and Colombia.

Looking ahead, we believe that global oil prices will fluctuate around the current high levels in the near term as concerns over the global oil supply glut ease.

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Content provided by Fung Business Intelligence
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