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China Sourcing Update: Energy Costs (Dec 2017)

Energy Costs

1. Crude prices fall and then rise in December

In line with the movement of global crude prices, China’s crude prices went down in early December and increased afterwards. For instance, after dropping from US$57.0 per barrel on 30 November to US$54.8 per barrel on 7 December, the Daqing crude price climbed to US$58.6 per barrel on 26 December.

The jump in global oil prices during mid- to late December was triggered by supply disruptions in Europe and an easing oil supply glut in the US. The Forties Pipeline System (FPS), which carries about 40% of North Sea crude oil, was shut down for nearly three weeks due to a crack in a pipe, leading to tightening of crude supply in Europe in the period. Meanwhile, data from the US Energy Information Administration (EIA) showed that the commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) in the US fell for seven consecutive weeks, going down to a two-year low of 424.5 million barrels as of the week ending 29 December. The declining stockpiles of oil signal the easing of the oil supply glut in the US.

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