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China Sourcing Update: Energy Costs (Sep 2017)

1.       Crude prices jump in September

In line with the movement of global crude prices, China’s crude prices shot up in September. For example, the Daqing crude price soared from US$ 45.8 per barrel on 31 August to a two-year high of US$ 53.2 per barrel on 26 September, before retreating a bit to US$ 52.2 per barrel on 29 September (see exhibit 1).

The surge in global oil prices in the month was mainly triggered by a decline in the global crude supply and expectations of a stronger global crude demand. According to the monthly report of the Organization of the Petroleum Exporting Countries (OPEC) released on 12 September, OPEC’s oil production declined for the first time in four months in August. A report published by the International Energy Agency (IEA) on 13 September confirmed the same trend – global crude production fell in August. Both the OPEC and the IEA also revised upward their estimates for global oil demand growth in 2017, which helped ease the market fears over an oil supply glut.

Moreover, oil prices were also boosted by tensions between Turkey and Iraq, a major oil producer, in late September, as Turkey threatened to shut down an oil pipeline from Iraq’s Kurdistan region, in order to pressure the region over its independence referendum held on 25 September.

Looking ahead, we expect global oil prices to fluctuate around the current high levels in the near future as concerns over the global oil supply glut continue to ease.

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Content provided by Fung Business Intelligence
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