China Stimulus and Seasonal Demand Buoy Oil; India’s Refinery Margins Under Pressure

Petroleum Price

• Oil prices rose on Saturday, closing the week higher on the back of cold weather in Europe and the US as well as additional economic stimulus flagged by China.
• Brent crude futures settled 58 cents, or 0.8 percent, higher at $76.51 a barrel, the highest level since Oct 14. US West Texas Intermediate crude settled 83 cents, or 1.13 percent, to US$73.96, the highest level since Oct 11. 
• Brent notched a 2.4 percent weekly gain, while WTI climbed nearly 5 percent.

Petroleum Demand and Supply

• China introduced measures this week to stimulate economic growth, including a surprise wage hike for government workers and increased funding via ultra-long treasury bonds to promote business investments and consumer spending.
• Oil demand is expected to rise due to colder weather across Europe and the US, boosting heating oil consumption. According to EIA data, U.S. crude inventories fell by 1.2 million barrels to 415.6 million barrels last week. 
• However, gasoline and distillate stocks increased as refineries ramped up production, though fuel demand reached a two-year low.
• The U.S. oil rig count dropped by one to 482, signaling potential future supply constraints. These factors, combined with China’s economic measures, support oil prices.

Petroleum News

• Indian oil refineries will see their profits decline in the next financial year, according to a report by Fitch Ratings. The main reasons for this decline are lower prices for petroleum products, a surplus of these products in the region, and reduced benefits from fluctuations in global crude oil prices.
• This decline is attributed to lower prices for petroleum products, oversupply in the region, and reduced benefits from fluctuations in global crude oil prices.
• However, oil marketing companies (OMCs) are expected to maintain healthy marketing margins, thanks to lower Brent crude oil prices and a forecasted 3-4% increase in India’s petroleum product demand in the financial year 2024-25 (FY25).
• “Fitch Ratings expects India’s petroleum product demand to rise by 3-4% in the financial year ending March 2025 (FY25), compared with increases of 3% in 7MFY25 and 5% in FY24. This is supported by rising consumer, industrial, and infrastructure demand…The growth in petroleum product demand is likely to be broad-based, with diesel and petrol accounting for the majority,” reads the report.

Expert Opinion

• Natural gas production in India is expected to grow at a low single-digit rate in FY25, supported by development projects on the western and eastern coasts. However, this growth rate is slower than the 9% compound annual growth rate (CAGR) seen between FY21 and FY24.
• Liquefied Natural Gas (LNG) imports are expected to increase by around 20% in FY25, driven by growing demand and lower international gas prices. This will make gas more affordable for price-sensitive sectors.