RPT: REVIEW - China, Weather May Impact Near-Term Oil Prices More Than OPEC+ Cuts, US Reserves Release

WASHINGTON (UrduPoint News / Sputnik - 02nd November, 2022) President Joe Biden keeps releasing emergency oil supplies to bring fuel prices down while OPEC+ carries out its biggest output cuts since the coronavirus outbreak to bring a barrel back towards $100. Yet, two things might matter more in the near-term to crude prices: the weather and China.

In one of the most unseasonable starts to the pre-winter season in the Northern Hemisphere, the fall weather from September through October has been warmer than usual, setting up the possibility that December could extend the trend.

That could spell trouble for those betting on crude prices to surge from next month from North American and European demand for heating oil, which usually rises in December and peaks in January and February.

The other phenomenon is China, which continues to practice 2020-style COVID-19 lockdowns when the rest of the world has moved on from the pandemic. Millions of people have been trapped in whole Chinese cities - sometimes in the strangest of locations - under Beijing's controversial zero-Covid policy.

In Shanghai this week, the local outlets of Swedish furniture giant Ikea and Disney were among places targeted by China's COVID police. The lockdown of the theme park, particularly, made global headlines as people were told they wouldn't be allowed out until they could show a negative COVID test result.

However, according to media reports, an unverified note circulating on social media said a "Reopening Committee" formed by Chinese Politburo Standing Member Wang Huning was reviewing overseas COVID data to assess various reopening scenarios, including dropping most curbs by spring 2023.

Thus, warm US weather and lockdowns in China could influence crude prices more in the near term than the Strategic Petroleum Reserve, or SPR, release by the Biden administration as well as the 2-million-barrels-per-day cuts by the Saudi-and-Russia dominated Organization of the Petroleum Exporting Countries and its allies, also known as OPEC+, say analysts.

As of Monday's market settlement, Brent crude, the global benchmark for oil, was at $94.83 per barrel. In March, right after the breakout of the Ukraine war which triggered an avalanche of Western sanctions against Russia and upended world crude supplies, Brent hit 14-year highs just short of $140 per barrel.

West Texas Intermediate, the benchmark for US crude known simply as WTI, was at $86.53 a barrel at Monday's close.

In September, Brent hit an eight-month low beneath $83 while WTI reached under $76 from the combination of China's lockdowns and fears of a US recession � the other variable analysts say could ultimately force oil prices to reach new lows in 2023.

"As far as oil prices are concerned now, it's push and pull, going in both directions," John Kilduff, partner at New York energy hedge fund Again Capital, told Sputnik. "OPEC+ and those betting on higher oil prices want a barrel at around $100. But Biden keeps releasing SPR supplies, although they are just a sliver of what OPEC cuts. To make matters worse, China just keeps throwing COVID curveballs at the market, one after another."

There's reason for the market to be razor-focused on the United States and China.

Combined, the two countries consume nearly 35 million barrels of oil a day, more than a third of global demand. Even though the United States has become one of the world's largest oil producers, it is still the second-largest importer of crude, trailing only China.

As of two weeks ago, the Global Forecast System, or GFS, for US weather and the European Center for Medium-Range Weather Forecasts, or ECMWF, was indicating mild weather, those who tracked those models said.

"On the weather front, there continued to be only minor changes in the long-range data," energy analyst Leticia Gonzales said in a blog that appeared on naturalgasintel.com. "Both the American and European models project modest national demand for at least another two to three weeks. This suggests that it won't be until late November or early December before sustained cold invades the northern or eastern United States.

"

Since then, weather readings have suggested more chill in the near-term, hinting at a potential flip to colder conditions by the end of the first week of November, Houston-based energy markets consultancy Gelber & Associates said in a note.

"While the bigger-picture weather models have been inferring the potential for a relatively mild start to winter, Mother Nature is ultimately in control of the weather game," Gelber & Associates said, conceding that the readings could go either way.

For the record, December 2021 was the second-warmest December ever.

In the meantime, OPEC+ has raised concerns with how the United States has been influencing oil prices with the release of its reserves. Some say members of the alliance are privately mocking the Biden administration for creating long-term problems for America by draining down its emergency crude stockpiles when it might have a real emergency need later for those supplies.

Saudi Energy Minister Abdulaziz bin Salman's message to the United States from a fortnight ago seemed to have a combination of both - mild annoyance and derision - as he cautioned about the pitfalls of using emergency oil supplies to keep a lid on market prices of both crude and fuel.

"It is my profound duty to make clear to the world that losing (releasing) emergency stocks may be painful in the months to come," Abdulaziz said at an industry conference in Riyadh.

The Saudi minister's remarks also came after President Joe Biden announced two weeks ago the sale of an additional 15 million barrels from the SPR to follow through with some 180 million released from the reserve over the past six months by his administration.

The additional SPR release will coincide with the 2 million barrels per day cut in global oil supply announced by OPEC+ for November onwards. The Biden administration has drawn down almost 240 million barrels from the SPR over the past year, bringing its stockpile to just above 400 million barrels, its lowest level since May 1984.

Aside from trying to offset the impact of the OPEC+ production cut, Biden also appeared to be timing the new SPR release just before the November 8 US midterm elections, in order to appease Americans voters wary of high fuel prices.

The Saudis have had a trying relationship with the US since Biden took office despite the two nations being long-time strategic allies on energy and security. U.S. relations with both Russia and Saudi Arabia have hit their lowest in decades, as Biden approved sanctions against Moscow over the Ukraine conflict while accusing Riyadh of supporting the Kremlin's role in the war.

Biden has said the Saudis will have to bear the "consequences" of the OPEC+ production cuts. Minister Abdulaziz responded by saying the kingdom had been "the maturer" side in the spat with the US.

Biden's decision to release even more oil from the SPR was followed up by the Paris-based International Energy Agency, or IEA, which said its members also had emergency oil supplies available for release, if needed.

"We still have (a) huge amount of stocks to be released, in case we see supply disruptions," Fatih Birol, executive director of the EA, said. "Currently it is not on the agenda, but it can come anytime."

Some analysts, however, believe oil prices will rise in coming months, regardless of the turn taken by the weather or China's lockdowns. They anticipate supply will tighten from Europe's impending ban on most oil imports from Russia and the West's move to restrict Russian shippers from the global shipping insurance industry.

The ban on Russian oil will conceivably tighten world shipping markets, which could also increase the price of oil. Many analysts believe Russia will be able to circumvent the measures, but it could still cause Moscow to cut between 1 million and 2 million barrels of daily production; it could also hit the distillates markets.

"Until 2024 we believe oil price will be strongly influenced by the availability of tankers that are willing to transport Russian oil rather than global supply-demand fundamentals, keeping oil price elevated," analysts at JP Morgan wrote.