Oil Tightens as China Boosts Oil Imports

oil prices tighten amid china's continuous oil imports

Crude oil prices rise due to weakening US crude production and inventories.

Oil prices jumped on Friday as US crude production and inventories weakened and plummeted, indicating a tightening market situation. Traders agreed that strong Chinese oil import data also supported crude prices.

Meanwhile, according to analysts, global oil markets were now broadly balanced after many years of oversupply thanks to a production-cut spearheaded by the Organization of the Petroleum Exporting Countries, or OPEC.

US West Texas Intermediate crude closed at $51.01 per barrel. This upped 41 cents, which is equivalent to 0.8 percent from its last settlement.

Brent was at $56.58, suggesting a 33-cent surge (equivalent to 0.6 percent).

Late on Thursday, the Energy Information Administration said that US crude inventories dropped 2.7 million barrels in the week to October 6. It is presently at 462.22 million barrels. Crude production fell 81,000 barrels per day to 9.48 million barrels a day.

On the other hand, China is further fortifying its position as the world’s biggest importer as its oil imports averaged 8.5 million barrels per day between January and September, in which it hit 9 million barrels per day.  The purchases for its strategic petroleum reserves (SPR) drove these enormous oil imports.

“It seems the majority of this is SPR buying, not consumer demand,” said Matt Stanley, who is a fuel broker at Freight Investor Services (FIS).

The Asian giant has dished out roughly $24 billion on building its crude reserves since 2015. It is currently holding roughly 850 million barrels of oil in inventory, based on the data released by the International Energy Agency.

The production-cut agreement led by OPEC will expire in March next year, but Bernstein Research said that the organization would need to extend the cuts in spite of the tightening market to further reduce excess stocks.

“OPEC will not achieve normalized inventory levels before cuts expire at the end of March,” said Bernstein. However, it also said, “We believe an extension of cuts through 2018 should allow inventories to reach normalized levels before the end of 2018.”

The agreement included Russia, and together with the organization oil productions have been restrained in order to curb a global supply glut, which experts claimed to have been controlled as expected.

Meanwhile, traders said that they are still on the watch for a decision later on Friday by US president Donald Trump. Trump is set to decide whether the US government will continue the certification of the 2015 Iran nuclear deals.

There is low expectation for the certification of the agreement, which has to be re-certified every 90 days. If Trump decides not to certify it, it will not pull US away from it but it will give the congress 60 days to consider the imposition of new sanctions.

“US sanctions could cut off a lot of Iranian oil trade finance,” FGE President Jeff Brown said. “Last time we saw this, it cut off 1 million bpd of supplies. I don’t think it’d be that big this time round, but it would still be significant.”

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