OPEC warns China demand could increase fuel prices

Diesel Prices

The issue of energy prices remains. Chief Analyst Thomas Cullen reports.

Logistics costs have eased across much of the world and many of the supply chain ‘bottle necks’ that were supposed to be so insurmountable have suddenly become less serious. However, that does not mean that the issue of inflation has necessarily disappeared. The logistics and supply chain crisis of 2021-2022 was driven by extraordinary policies around ‘public health’ but also monetary policy, with furious money-printing resulting in spikes in inflation. Both have moderated, with the Federal Reserve in the US struggling to return the growth in the money supply to some sort of normal.

However, the issue of energy prices remains. Certainly, the oil price has fallen-back to a more moderate $84 per barrel with the consequent impacts on diesel prices, although jet fuel and bunker fuel have fallen less heavily. Despite the war in the Ukraine and the structural changes in the European energy economy, the oil market at a global level has been relatively well supplied. This is, incidentally, in great part due to the nature of oil logistics, with oil being easy to move from one market to another, unlike gas.

However, an important factor in moderating fuel costs has been lower demand from China. OPEC has now warned in its latest analysis of the oil market, that if China bursts-out from its previous COVID induced isolation the impact on demand could drive-up prices. To quote from the organisation; “Chinese oil demand is on course to rebound due to the recent relaxation of the country’s zero-COVID-19 measures”, something which OPEC believes may provide “a sound base” for prices through 2023.

With oil prices still not anywhere near the lows seen in 2020, a China induced demand ‘uplift’ could lead to another spike in prices. For, as several oil executives have been pointing-out recently, investment in new production has been low for a number of years resulting in a shortage of new production capacity, thus making the market vulnerable to shortages.

Those buying and selling in logistics markets should therefore be aware of the possibility of higher fuel prices in 2023. In contrast to 2021-2022, over-all demand could be more moderate as well, making things particularly hard for logistics suppliers such as shipping lines and road freight companies.

Source: Ti Insight

Author: Thomas Cullen

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