The Energy Report: Cuts of a Different Nature

The price of oil has slightly increased in an attempt to even out the indications that OPEC's reduction of production is being put into action, and also the effects of China's rate cuts. Some big banks in China have declared that their economy is deteriorating. JODI reports have reinforced oil prices by indicating that Saudi oil exports have declined, while UAE has also reported reduction in exports.

However, the growth of oil was hindered due to concerns about China's economy. Goldman Sachs and UBS have both decreased their predictions for China's growth in 2023 from 6% to 5.4% and from 5.7% to 5.2% respectively. Similarly, Wells Fargo's forecast for China's growth this year has been reduced to 5.7%. This is why China has decided to decrease its key lending rates, which have not been lowered for 10 months. Specifically, the one-year loan prime rate has been decreased by 10 basis points to 3.55%, and the five-year LPR has been reduced by the same amount to 4.20%.

Even though the economy in China has been slowing down, their need for oil is still strong. The CNPC reports that from January to May, the demand for crude oil in China went up by 2.3%. Experts anticipate that the growth will accelerate in the second half of the year and result in a 3.5% increase for the entire year, reaching an impressive 740 million tons.

However, there are indications that Saudi Arabia is committed to staying ahead of any potential slowdown, in case it materializes.

The Wall Street Journal reports that China may be enhancing its economy by constructing a new training center in Cuba, which could potentially result in Chinese military presence on American shores. This raises the question of how President Biden's foreign policy is ensuring the safety of our nation. Is it due to his lenient border policies or permitting the Ukrainian conflict to persist? Was it his decision to withdraw from Afghanistan or is it his approval of China building an Army base in Cuba? Perhaps the speculations about the Chinese balloons were simply experimental tests.

A meeting took place between Chinese President Xi Jinping and US Secretary of State Antony Blinken on Monday, which was reported by Fox News. The two leaders shook hands in front of cameras before Blinken spoke to the media at a press conference. He emphasized that the relationship between their countries was highly significant and called for responsible management of it. However, some people have noted that Blinken appeared frightened during his remarks.

During the month of April, Saudi Arabia's exportation of crude oil dropped to the lowest it had been in five months. The amount of crude oil exported during that time was approximately 7.316 million barrels per day, which is about 3% less than the 7.523 million bpd that was exported in March. This information was reported by JODI.

According to an article by Alex Kimani on Oil Price, the United Arab Emirates and Qatar have finally ended their six-year conflict and decided to restore their diplomatic relationship. The disagreement began when the UAE blamed Qatar for supporting terrorism.

Does the market give importance to crude oil? Well, it seems like distillates are getting more attention now. According to John Kemp from Reuters, portfolio investors are shifting their focus from crude oil to middle distillates. This is because they expect that the low amount of distillate inventories will help keep prices steady, even if there is a decline in the global economy and petroleum usage.

During the week ending on June 13, hedge funds and other financial investors sold -21 million barrels of crude oil options and futures. However, they bought +18 million barrels of oil-based products, including +14 million barrels of distillates. The main shift was towards European gas oil, due to the increase in crude oil supplies in the United States. Meanwhile, stocks of distillates, which are used more extensively in Europe, were still below the usual levels.

Furthermore, in spite of decreasing crude exports, Saudi Arabia is boosting its diesel imports. Specifically, the country's diesel imports spiked by 71,000 barrels per day from March to April, reaching the highest point seen since November of last year.

We believe that the market is unaware of the approaching limited supply situation. The release of SPR is coming to an end, and there's not much global spare production capacity, and the investment in oil and gas falls short of what's required.

The cost of gasoline is still pricey at filling stations, yet it hasn't reached exorbitant levels yet. According to AAA, the mean cost for regular gasoline is $3.577, which has increased from $3.540 in the previous month, though it has decreased from the previous week.

We should begin keeping an eye on the weather. According to Fox Weather, there might be a tropical storm named Bret in the Atlantic that will turn into a hurricane by Wednesday. They also predict that Bret will move towards the west for the next few days and might arrive at the Caribbean islands by the end of the workweek.

There may be intense rainfall, strong winds, and a hazardous storm surge in some areas of these islands. This could potentially disrupt the production of oil and gas.