20 July 2017
China Sourcing Update: Energy Costs (Jun 2017)
Crude prices fluctuate during mid-June to mid-July
In line with the movement of global crude prices, China’s crude prices fluctuated around low levels during mid-June to mid-July. For example, after droppingfromUS$43.0per barrel on 13 June to a seven-month low of US$39.4per barrel on 22 June, the Daqing2 crude price picked up toUS$44.1per barrel on 5 July before falling again to US$41.2per barrel on 11July (see exhibit 1).
The plunge in global oil prices during mid-to late June was due largely to investors’ concerns that the oil market would remain over-supplied for longer than expected, as both the Organization of the Petroleum Exporting Countries (OPEC) and the US reported an increase in their crude output. According to the OPEC Monthly Oil Market Report published on 13 June, crude production by OPEC member countries rose by 336,000 barrels per day in May to 32.14 million barrels per day. Meanwhile, US production of crude oil expanded to a 22-month high of 9.35million barrels per day in the week ending 16 June, according to the US Energy Information Administration(EIA).
Global crude prices rebounded during late June to early July as investors went bargain-hunting and market concerns about the global supply glut of crude oil temporarily eased after it was reported that both the crude production and gasoline inventories in the US fell in the week ending 23June.
However, global oil prices dropped again during late June to early July after reports surfaced that oil exports by OPEC member countries climbed for a second consecutive month in June, and that US crude output rose to 9.338million barrels per day in the week ending 30June.
Looking ahead, we expect global oil prices to fluctuate around the current low levels in the foreseeable future as it is still doubtful as to whether the OPEC-led output cut can significantly mitigate the global oil supply glut amid a rising oil production in the US.
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