Post OPEC Cuts, 3 Factors In Play For Summer Oil Demand
Ellen Wald | Jun 01, 2017 05:05
As June arrives, here is a look at where oil prices stand going into the summer of 2017. The May 25, 2017 OPEC and joint non-OPEC meeting ended exactly as overshot reality.
Now that OPEC has made its decision regarding supply, the question for the market is what demand will look like this summer. Below are three significant factors that could affect the oil market this summer.
h2 /h2 h2 1. U.S. Demand/h2Typically, demand for gasoline rises over the U.S. Memorial Day weekend. Excursions by car of 50 miles or more were expected to increase by 2.7%. Air travel is also expected to produced a record 10.67 million bpd).
Ramadan, the Muslim month of fasting, just began this week, so electricity use in the Gulf will be even higher this June. However, traders should not expect Saudi domestic demand for crude oil to rise this summer as much as in previous years. This is due to the expansion of the Wasit natural gas plant, which should replace approximately 100,000 bpd of crude oil usage with natural gas. Another natural gas plant is expected to open in 2019, accelerating Saudi Arabia’s shift towards natural gas usage.
h2 3. Chinese Demand/h2Chinese oil demand has remained robust over the past two years. The Chinese have taken advantage of low oil prices to expand their petroleum reserves and have increased their storage capacity significantly. However, there are signs that Chinese oil imports may slow during the summer months. China imported a Chinese government has also taken steps to limit the amount of crude oil independent Chinese refiners can import to a combined 2 million bpd. China may very well limit its oil imports this summer in order to draw down its burgeoning oil stocks, which will look like slackening demand. This could counteract strong demand in the U.S. and Persian Gulf and put downward pressure on oil prices over the summer.
As the media focus on production numbers from OPEC, Russia, U.S. shale, and others, it is also vital to keep an eye on global demand.
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