Chinese refinery run rates fell by 10% on the month in August, contributing to persistent bearishness on oil markets even as supply disruptions in the U.S. and Libya helped the benchmarks start the week with gains.
ING analysts Warren Patterson and Ewa Manthey wrote in a note earlier today that August processing rates at Chinese refineries averaged 12.6 million barrels daily, which besides being a tenth lower than July rates, was also down by 17.5% on the year.
At the same time, these rates suggest that Chinese refiners were building inventories at a daily rate of 3.2 million barrels last month which would be the largest monthly increase in inventories since 2015, Patterson and Manthey wrote.
China has been the central factor driving growing bearishness in oil markets after two decades of such strong grow that many traders apparently assumed it was the default rate of oil demand growth for the Asian powerhouse. Now that they are seeing this is not the case, they have swung the market into a net short position for the first time ever, the ING analysts noted.
Speculators, they reported, sold 54,325 ICE Brent lots in the last reporting week, tipping the market into a net short of 12,680 lots, after "a combination of longs liquidating and fresh shorts."
This week could bring some relief to bulls, however, as the overwhelming expectation about the upcoming Federal Reserve meeting tomorrow is that the central bank would announce an interest rate cut. These are bullish for crude oil.
The effect, however, is quite likely to be limited, because of precisely this anticipation of a cut. The effect of such a cut should already be factored into prices. Besides, judging by the lukewarm effect of bullish factors on prices lately, it would take a lot to move the needle in any remarkable way.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More