China Expands Crude Import Quotas Amid Global Supply Tensions

Key Takeaways

1. Price Trends: Brent and WTI futures saw slight declines, indicating cautious market sentiment, Indian MCX crude oil prices gained slightly, reflecting localized factors.
2. Demand & Supply Factors: Early winter weather has driven up refining margins and natural gas prices, while weaker demand from Europe and China limits upward momentum, New crude import quotas for independent refiners are expected to boost China's crude purchases.
3. Expert Insights: Analysts expect a bullish trend in crude oil prices if geopolitical risks persist, particularly in the Middle East.

Crude Oil Price Trends: Asia and Global Markets

• Crude oil futures in Asian trading hours Monday were slightly lower, as broader demand concerns offset geopolitical tensions.
• Front-month Jan25 ICE Brent futures were trading at $74.68/b (0600 GMT), compared to Friday's settle of $75.17/b and sitting just off recent two-week highs. At the same time Jan25 NYMEX WTI was trading at $70.75/b, versus Friday's settle of $71.24/b. Mcx crude oil prices opened at 5842 with a gain of 0.40%.

Geopolitical Tensions: Russia and Iran Influence on Oil Supply

• Tensions ramped up last week after President Putin signed an amendment to Russia's nuclear doctrine, widening the scope for Moscow to use nuclear weapons.
• "This escalation has raised geopolitical tensions beyond levels seen during the year-long conflict between Israel and Iran-backed militants," said Ole S Hansen, Head of Commodity Strategy at Saxo Group, noting the broader commodities complex posted the highest weekly gains since April.
• Meanwhile, the threat of tighter sanctions against Iranian oil ratcheted up after the collapse of a deal that would limit Iran's stockpiles of enriched uranium.
• Additionally, markets were given a leg-up by improved refining margins and soaring natural gas prices, with the US and Europe hit by early-winter cold snaps.
• However, broader fundaments continued to work against oil amid a backdrop of lacklustre demand growth from China and Europe, while non-OPEC+ production continues to increase.

Petroleum News: Global Refining Margins and Natural Gas Prices

• China has issued an additional crude oil import quota of at least 5.84 million metric tons (116,800 barrels per day) to independent refiners for cargoes arriving by end-2024 and in early 2025, people familiar with the situation said on Monday.
• The quotas are likely to lift China's crude imports heading into next year, after purchases rebounded in November, driven by sharp price cuts for shipments from Iraq and Saudi Arabia.
• Refiners, including Hengli Petrochemical and some independents in eastern Shandong province, also known as teapots, have been notified that they will receive additional quota volumes for 2024, they said.
• Of these, an estimated 3.84 million tons (76,800 bpd) were given to Shandong-based teapots, while Hengli received 2 million tons, the sources said.
• These quotas are expected to be utilized by the end of this year, according to traders.
• The sources declined to be named as they are not authorized to speak to the media. China's Ministry of Commerce, which regulates crude oil imports quota, did not immediately respond to a fax for comment by Reuters.
• Some teapots, hit by poor profit margins caused by weak demand this year, had been lamenting about insufficient quota which constrained their imports of feedstock for production.

Expert Opinion: Will Oil Prices Rise in the Coming Weeks?

• Prices of Iranian oil to China rose to multi-year highs this month as lower exports drove up prices amid concerns that Middle East tensions may disrupt supply. Market players fear that any escalation in tensions in West Asia could impact the region’s crude oil supply.
• Market players believe that Donald Trump may decide to impose sanctions on Iran, taking into account developments such as the IAEA’s censure and Iran’s response. Any sanction could reduce Iran’s daily supply of 1 million barrels of crude oil.