Oil Futures Gain on Supply Concerns, China Outlook

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange powered higher early Tuesday as investors assessed the supply impact from the shutdown of Turkey's oil-export terminal in Ceyhan, while a recovery in Chinese fuel demand following an abrupt exit from Beijing's zero-COVID policies is seen boosting bullish sentiment.

Turkey's oil-export terminal at Ceyhan, with a capacity of 1 million barrels per day (bpd) or 1% of global oil supply, has been temporarily shut down after a deadly earthquake struck the country and the northern region of Syria. The terminal mainly handles oil exports from Central Asian and Middle Eastern producers, including Iraq and Azerbaijan.

So far, no leaks have been detected along the pipelines feeding oil to the port, but damage assessment is still ongoing, according to officials. The Kerkuk-Ceyhan pipeline carrying oil from Iraq to Turkey and the Baku-Tbilisi-Ceyhan pipeline that connects oil fields in Azerbaijan, Turkmenistan, and Kazakhstan to Mediterranean ports are expected to restart this week. As traders assess supply disruptions on the global oil market, OPEC's top officials signaled that China's oil demand is set for a strong recovery this year. "There is a pent-up demand that accumulated over the pandemic," Sheikh Nawaf Al-Sabah, chief executive officer of Kuwait Petroleum, told Bloomberg TV on Monday, adding, "Now, with the opening up, we're seeing an increase in demand that is sustainable. This is not a dead-cat bounce."

Saudi Aramco -- the world's top exporter -- lifted prices for its benchmark crude it sells to Asian buyers for the first time in six months, adding $0.20 barrel (bbl) to March sales. The change means Arab Light will carry a $2 bbl premium over the average of the Oman and Dubai benchmarks.

Aramco also raised prices of its Arab Light crude for customers in northern and southern Europe by $2 bbl, widening the premium over the Brent crude benchmark to $0.50 bbl. For U.S. buyers, Aramco lifted OSP prices by $0.30 bbl in March to a $6.65 bbl premium against the Argus Sour Crude index.

Saudi Arabia emerged as a major supplier of crude oil and oil products into the European Union after the EU banned all seaborne imports of Russian crude oil late last year. On Sunday (2/5), the EU embargoed all purchases of Russian oil products, including gasoline, diesel, jet fuel, naphtha, and fuel oil. The trade restriction is complimented with a price cap agreed to by the Group of Seven nations -- the U.S., United Kingdom, Germany, France, Italy, Japan, and Canada.

Near 7:30 a.m. EST, West Texas Intermediate futures for March delivery added $1.10 to $75.21 bbl, and the international crude benchmark Brent contract rallied to $81.99 bbl, up $0.99 bbl. NYMEX RBOB March contract advanced $0.0545 to $2.4279 gallon, and March ULSD futures climbed to $2.8107 gallon after trading at a $2.6653 one-year low on the spot continuous chart.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges