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Chinese 2012 oil surge tightens market - report

22nd January 2013

The oil market is looking tighter than expected, as an unexpected surge in Chinese oil demand late last year coincided with a big cut in output from Saudi Arabia

Chinese 2012 oil surge tightens market - report
Amid the shifts in Saudi production and Chinese demand, crude prices built on their late-2012 gains to hit three-month highs at the start of this year

The global oil market tightened in December 2012 as Chinese demand increased and Saudi output declined from 30-year highs, according to the International Energy Agency’s (IEA) Oil Market Report for January. The report warned against making hasty interpretations about the shifts in Saudi production and Chinese demand. It noted that the dip in Saudi supply seems driven less by price considerations than by the weather. “A dip in [Saudi] air conditioning demand – as well as reduced demand from refineries undergoing seasonal maintenance – likely goes a long way toward explaining reduced output,” the report said. “Nothing for the global markets to worry about.” The report also cautioned that although manufacturing has picked up in recent months in China, elevated debt levels and economic uncertainties could lead to swings in Chinese demand, in both directions, throughout 2013. Amid the shifts in Saudi production and Chinese demand, crude prices built on their late-2012 gains to hit three-month highs at the start of this year. While the Oil Market Report noted that the rally looked overdone, it said that higher oil prices are underpinned by the reduced risk of a recession in the US. The Oil Market Report highlighted that with the onset of winter, inventories of heating fuels remain low in the OECD. In the Western Hemisphere, levels are below seasonal norms, but other regions have stocks at normal levels. The Oil Market Report (OMR) is a monthly IEA publication which provides a view of the state of the international oil market and projections for oil supply and demand 12-18 months ahead.