Brent pares losses as IEA warns of global diesel crunch

Front-month ICE Brent has gained $2.09/bbl on the day, to $94.33/bbl at 09.00 GMT.

PHOTO: Druzhba pipeline network is one of the world's largest oil pipeline networks in the world. Transneft

Upward pressure:

The International Energy Agency (IEA) has warned of “diesel tensions” as oil inventories in developed nations have slumped to their lowest level since 2004. The IEA sees output growth of just 740,000 b/d next year and predicts global oil production at 100.7 million b/d. It expects global oil supply to decline by 1 million b/d for the remainder of 2022 as OPEC+ output cuts and EU sanctions on Russian crude come into effect.

“When you look at what we saw from the IEA about global oil inventories, that should be very bullish,” Price Futures Group analyst Phil Flynn told CNBC.

Just a day earlier, OPEC had also cut its forecast for non-OPEC liquids supply growth this year by 30,000 b/d to 1.9 million b/d, implying a supply deficit throughout the year. OPEC's own crude oil production decreased by 210,000 b/d to an average of 29.49 million b/d in October.

“Brent futures are set to hit $108/bbl in the second quarter of 2023 as China exits its zero-Covid policy while EU sanctions will take off 1.5 million b/d of Russian supplies,” according to French investment bank Societe Generale to Quantum Commodity Intelligence.

According to oil pipeline operators in Hungary and Slovakia, oil supply via a section of the Druzhba pipeline has been suspended temporarily. Many countries in Eastern and Central Europe including Germany, Poland, Belarus, Hungary, Slovakia, the Czech Republic and Austria rely on oil from the key Druzhba pipeline network, which is one of the world's largest with the capacity to flow 2 million b/d.

Downward pressure:

“China’s persistently weak economy, Europe’s energy crisis, burgeoning product cracks, and the strong US dollar are all weighing heavily on consumption,” the IEA says as its trims its oil demand growth forecast for next year. It now expects demand to grow by 1.6 million b/d next year, or 100,000 b/d less than it forecast in October.

Renewed Covid-19 lockdowns have sparked violent protests in China’s Guangzhou district and several smaller neighbouring regions, according to BBC reports citing social media footage. China has reported 20,199 fresh Covid-19 infections on 16 November, as per its National Health Commission.

A number of districts around China have been hit by restrictions as local authorities scramble to follow the government's zero-covid policy.

By Konica Bhatt

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