2024.12.17

Oil Prices Slip on Weak Chinese Spending and Fed Rate Decision Anticipation

Oil prices fell slightly on Monday after reaching multi-week highs, as weak consumer spending data from China, the world's largest oil importer, weighed on demand expectations. Brent crude settled at $73.91 per barrel, and U.S. WTI closed at $70.71, both down 0.8%. Investors paused ahead of the U.S. Federal Reserve's upcoming interest rate decision, which is expected to include a rate cut that could boost economic growth and oil demand.

Chinese retail sales underperformed, raising concerns about economic growth and prompting calls for additional stimulus. Analysts noted that profit-taking after last week's 6% price jump and reduced trading activity during the holiday season also pressured oil. Additionally, a stronger U.S. dollar, which inversely affects oil prices, added to the decline.

Markets now await U.S. oil inventory reports, which are expected to show a decline in crude and distillate stocks while gasoline supplies may have increased.

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China's November Refinery Throughput Rises for First Time in Eight Months Amid Demand Recovery

China's refinery throughput increased by 0.2% year-on-year in November, reaching 14.24 million barrels per day (bpd), marking the first rise since April.

The rebound is attributed to Beijing's economic stimulus measures that boosted industrial activity and infrastructure, supporting diesel demand. Independent refiners improved operating rates, aided by seasonal demand and additional crude import quotas.

Despite the monthly gain, January-November crude processing declined 1.8% year-on-year, indicating the throughput remains on track for an annual drop. Analysts expect a full-year decline despite improving trends. China's domestic crude production rose 0.2% in November, while natural gas output grew 3.1%, reflecting steady energy sector performance.

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VLCC Spot Rates Hit 2024 Low, but Analysts See Upside for Tanker Equities

VLCC spot rates have fallen to new 2024 lows, with the Baltic Exchange reporting Middle East-to-Asia routes at $17,600 per day, down 19% in a week. Sources assessed eco tankers at $26,000 per day, while three-year time charters remain stable at $43,500 per day. Analysts believe this disconnect between spot rates and tanker equities reflects excessive investor pessimism.

Despite sluggish activity and well-stocked tonnage lists, Saudi Arabia’s lower crude prices are boosting Chinese interest in January cargoes, potentially increasing demand. Analysts argue that tanker owners like Frontline and DHT Holdings remain well-positioned, with spot rates unlikely to impact free cash flow significantly.

Looking forward, conflicting forecasts from the IEA and OPEC suggest uncertainty: the IEA predicts oil production will outpace demand in 2025, while OPEC anticipates the opposite. so sees stronger oil production and inventory builds as potential catalysts for improved tanker demand in 2025.

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US Weighs New Shadow Fleet Sanctions, Lower Oil Price Cap Before Biden Leaves Office

The United States is considering new sanctions on Russia’s shadow fleet and a potential reduction of the $60-per-barrel oil price cap in the final weeks of Joe Biden’s administration, Treasury Secretary Janet Yellen said. The move aims to curb Russian oil revenues and strengthen Ukraine's position as political shifts loom with Donald Trump’s incoming presidency.

The G7-imposed price cap, designed to limit Kremlin revenues while maintaining oil flows to non-G7 countries, has faced mixed results. A Federal Reserve Bank of Dallas study reported a 26% drop in Russian oil export revenues in early 2023, primarily due to bans rather than the cap. Critics argue the measure encouraged shipowners to bypass G7-linked insurance and services, fueling the growth of an underregulated shadow fleet.

Yellen also hinted at the possibility of sanctions targeting Chinese banks linked to Russia’s war efforts, though she emphasized the need for evidence and ongoing dialogue with China to avoid enforcement actions. While tightening sanctions remains under discussion, analysts note that further measures may have limited impact without broader enforcement on non-G7 entities like China.

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China and US Receive First Imports of Iraqi Qaiyarah Crude

China and the US have imported their first shipments of Qaiyarah heavy crude, produced from an Iraqi oilfield that resumed production in 2023.

• The VLCC City of Tokyo (304,000 dwt, built 2004), previously used as floating storage, is transporting 2 million barrels of crude to Qingdao, China, with arrival expected on 30 December.

• The US received its first cargo last week via Teekay Tankers’ Seletar Spirit (109,000 dwt), discharged at Valero’s Port Arthur refinery.

The cargo underwent multiple ship-to-ship transfers, starting from the VLCC VS87 (299,000 dwt), used as floating storage near Basrah.

Analysts suggest China could increasingly source crude from Iraq, shifting away from Iranian oil due to anticipated stricter sanctions under Donald Trump’s presidency.

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Ukraine to End Russian Gas Transit Deal by Year-End, Talks Underway for Alternatives

Ukrainian Prime Minister Denys Shmyhal announced that Ukraine will not extend its gas transit deal with Russia beyond January 1, 2025, while remaining open to transiting non-Russian gas. The decision, driven by Ukraine's ongoing conflict with Russia, has triggered concerns among European countries reliant on Russian gas transported through Ukrainian pipelines.

Slovak Prime Minister Robert Fico emphasized that maintaining gas transit is critical for all of Europe, not just Ukraine’s neighbors, as Slovakia negotiates to secure continued supplies under its long-term contract with Gazprom. Slovakia’s Economy Minister noted that European demand for Russian gas via Ukraine could reach 15 billion cubic meters next year, with talks aiming for a multi-year solution.

Moldova is exploring alternative routes for Russian gas through Turkey, Bulgaria, and Romania, while Ukraine has also discussed transporting Azerbaijani gas to Europe. The EU aims to phase out Russian fossil fuels by 2027.

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EU Sanctions 52 Ships in Largest Crackdown on Russia’s Shadow Fleet

The European Union has blacklisted 52 additional vessels in its most extensive sanctions package targeting Russia since the start of the Ukraine war. This 15th round of sanctions aims to disrupt the Kremlin's shadow fleet, which transports oil, LNG, arms, and grain, while undermining Moscow’s war efforts.

With this move, the EU brings the total number of designated ships to 79, joining other Western regimes like the US and UK, which have collectively sanctioned nearly 140 tankers since February 2022. The new list includes:

• 42 crude/product tankers (e.g., Georgy Maslov, Zaliv Amurskiy),

• 7 LNG carriers (e.g., Christophe de Margerie, La Perouse), and

• 3 cargo ships.

Many of these vessels operate under flags of convenience, with Barbados hosting over half of the blacklisted tankers. Notable targets include Sovcomflot-owned LNG carriers linked to Russia’s Yamal project and Dubai-linked shadow LNG ships.

The measures coincide with broader sanctions targeting Chinese entities supplying drone components for Russia’s war, highlighting escalating enforcement efforts. Kyiv welcomed the move but called for faster action to further constrain Russia’s shadow fleet operations.

Sanctions analysts argue that consistent follow-up rounds could significantly disrupt Russia’s alternative shipping network, curtailing its ability to evade Western restrictions and fund its military efforts.