China Won't Be Returning To The Oil Market This Year
My instincts are telling me that China won't be returning to the oil market this year, while my bias continues to insist otherwise. I think my instinct is right and there are confirmable market signals to suggest that China won't be making a comeback for the oil market this year.
The four signals are:
Brent timespreads
West African Crude spreads to Brent
China's onshore crude oil inventories
Singapore refining margins
Brent Timespreads
Oil prices attempted to make a breakout yesterday but fell short. Price actions like this have historically been a good indicator of where oil prices are going in the near term. In addition, you can see based on the Brent 1-2 timespread above the lack of strength we are seeing in the physical market.
The combination of the two suggests to me that 1) China has not returned and 2) Russian oil exports are likely to keep flowing even following the embargo.
Could I be dismissing these two catalysts too soon? Possibly, but I would need to see the market convince me otherwise. Consider this fact, the oil market is now trading January 2023 barrels (in the physical market). If there were signs that China was returning soon and Russia's oil would actually fall off a cliff, then shouldn't Brent timespreads be skyrocketing?
In addition, we are also at the tail end of the global refinery maintenance period, so why aren't we seeing spreads perform better?
By asking these questions, I am inclined to believe that both of the very catalysts we thought could propel oil prices higher into year-end are nonexistent.