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China Sourcing Update: Energy Costs (Feb 2017)

  1. Crude prices fall in early to mid-March

In line with the movement of global crude prices, China’s crude prices plummeted during early to mid-March after fluctuating within a narrow range during early January to early March. For example, the Daqing crude price hovered between US$ 48.5 per barrel and US$ 52.0 per barrel during early January to early March, before slumping to US$ 44.9 per barrel on 13 March (see exhibit 1).

The main reason for the plunge in global oil prices during early to mid-March was investors’ concerns that a global supply glut would persist despite efforts by the member countries of the Organization of the Petroleum Exporting Countries (OPEC) to curb crude production. The OPEC-led crude output cut kicked in on 1 January; however, production and stockpiles of oil continued to rise in the US. Data from the US Energy Information Administration (EIA) showed that the US’s production of crude oil expanded by more than 500,000 barrels per day from October 2016 to February 2017. The US’s production of crude oil is expected to increase further in the coming months. Moreover, the commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) in the US rose for nine consecutive weeks, reaching a record high of 528.4 million barrels as at 3 March, according to the EIA.

Looking ahead, it is expected that the rising US oil output will continue to undermine the positive impacts of the OPEC-led crude output cut on global crude prices. Moreover, there are concerns as to whether the OPEC-led output cut will be extended beyond June. In view of these factors, we believe that global oil prices are unlikely to start an upward trend in the near future.


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Content provided by Fung Business Intelligence
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