TOCOM Energy

Welcome back to JPX energy market updates.
Crude oil futures last Friday continued the week's firmer trend and were sharply higher as concerns over diminishing Russian supplies ahead of the price cap, firmer diesel cracks , rumours that China could ease Covid restrictions to spur economic growth while the dollar gave back a chunk of its post fed meeting gains.
China, the area of the world most affected by public health restrictions in 2022, saw comparatively limited constraints in 2021. The impact of these restrictions has been a major driver of the global demand slowdown.
Persistent rumours that China is considering relaxing its zero-Covid policy in the new year have helped sentiment last week, but there has been no official word of a change in policy as National Health Commission spokesperson announced at a press conference on Saturday. Although the policy has not changed literally, it’s worth paying close attention to some high-frequency indicators to judge whether there is a marginal change in the policy.

For now, Baidu indicators of congestion in the country’s largest cities show that drivers have tumbled due to a rebound of covid cases. Meanwhile, Radarbox domestic flight numbers declined sharply from late-August onwards, before staging a partial recovery in late September, while international flight number remain at a low level.
However, from October 30 to March 25 next year, Chinese airlines will carry out the new winter and spring flight schedule. The highlight of the new plan is a sharp increase in the number of domestic and international flights.
Increased air traffic consumption will boost jet fuel oil demand growth. An anticipated gradual rebound in Chinese activity is also the largest single element in 2023 oil use gains, contributing 800 kb/d of the 1.7 mb/d total according to IEA’s previous estimates.

Markets were also underpinned after the EIA figures released late Wednesday revealed that US commercial crude inventories fell by over 3 million barrels in the final week of October even as exports slowed, while domestic oil production eased to a five-month low of 11.9 million bpd.
On the Macro aspect, the employment statistics for October in the United States were announced, and the number of non-agricultural workers increased by more than 260,000 compared to the previous month while the unemployment rate ticked higher to 3.7%, earnings for private sector workers rose 0.4% in October, compared with a 0.3% gain in September, and were up 4.7% from a year earlier. However, the strong jobs report could signal to the Federal Reserve that the economy can withstand further interest rate hikes.

Middle East benchmark Dubai crude edged higher for a second consecutive week, although demand in Asia was seen as patchy and the flat price increase was largely attributed to firmer Brent prices. The Middle East Dubai benchmark lost further ground to its North Sea Brent counterpart, as upcoming Russia sanctions and a potential winter fuel crunch again lifted European prices at a faster pace.
The February cash Brent/Dubai Friday was assessed at $6.5/b, while the February ICE Brent/JPX Dubai was hovering around $10.2/b.
OPEC's crude oil output held steady last month after the group pledged a symbolic cutback of 10,0000 bpd, reversing the previous month's target increase of by the same amount according to a Bloomberg survey, but with the majority of members already lagging behind their targets, few needed to cut.

The prompt Dubai market structure, however, softened over the week, as the key M1/M3 spread dipped to $4.15/b on Friday, compared to last week's $4.50/b, While JPX Dubai crude time spread for the same period dipped to $3.3/b, indicating that demand remains relatively sluggish for now.
Meanwhile, Saudi Aramco has cut its Official Selling Prices (OSPs) for December-loading crude, largely in line with expectations after backwardation in the underlying Dubai benchmark narrowed last month.
Markets will likely focus on two key news this week. Firstly, the US October CPI is the most critical data point in the week, the data which is expected to ease from September levels will help shape expectations on the Fed’s December policy moves. Secondly, US Deputy Treasury Secretary will travel to Europe to discuss sanctions on Moscow and the implementation of what is expected to be a fixed-price cap on Russian oil, the EU embargo on Russian oil will require a difficult flow adjustment in the restricted tanker market, which is likely to reduce oil production and further add to the winter shortfall.