The Biden administration's policies push demand and reduce supply somewhat — which will likely cause oil prices to rise.
(Bloomberg) -- After loading up with coal the DZ Weihai slipped into the turquoise waters off the coast of Australia this month and began a 14-day voyage to the southern Chinese port of Yangpu. How long the ship waits to discharge its cargo upon arrival is anyone’s guess.Despite a Chinese ban on coal imports from Australia that’s left about 70 ships, 1,400 seafarers and 6.4 million tons of the fuel in offshore limbo, some vessels continue to make the voyage. While the stranded cargoes and crew are trapped between authorities who won’t let them unload and buyers who won’t let them leave, perhaps most curious of all is what is driving additional shipments.While mundane matters like contractual commitments play a role, traders are likely motivated by a mixture of hope and money. China is considering accepting cargoes that arrived before the ban boosting optimism restrictions could ease. If they do, a windfall awaits as the gap between Chinese and Australian coal prices has widened to a record.“Chinese buyers with stranded cargoes are reluctant to resell these because the cost of these cargoes is so much less than domestic prices,” said Rory Simington, principal analyst at Wood Mackenzie Ltd. “Even if the cargoes are not released for another six months, the cost including demurrage would still be well below where the domestic prices are currently.”A single 100,000-ton cargo of coking coal from Australia would cost a trader about $14 million based on seaborne prices not including transport costs. The same amount bought in the domestic market would be roughly $28 million. The cost for failure to unload a bulk carrier, known as a demurrage fee, is between $13,000 and $17,000 daily.The Australian ban has never been publicly acknowledged by Beijing, making pinpointing its start date difficult. Chinese power stations and steel mills were verbally told to stop using the fuel in mid-October. Authorities also ordered traders to halt purchases of a raft of the country’s commodities, including coal, from Nov. 6.China’s customs administration didn’t immediately respond to a fax seeking comment.Since Oct. 15, 20 vessels have loaded coal in Australia and signaled destinations in China, including the DZ Weihai this month, according to shipping data compiled by Bloomberg. Some of them, like the Rixta Oldendorff, diverted to other countries mid-journey. But at least 11 have joined the larger flotilla and are waiting outside Chinese ports to discharge.To be sure, China’s ban on Australian coal has shifted global flows of the commodity dramatically: mainland buyers ordered several South African coal cargoes in December and have boosted imports from Indonesia and Russia. The value of China’s purchases of Australian coal fell by 16% last year to $7.9 billion.Still, China is considering accepting some Australian coal cargoes that arrived before the ban on the imports went into effect, a person familiar with the situation said this month. Deliberations are at an initial stage and any decision would need approval from senior leaders. The broader prohibition on Australian coal remains in place, and ideally the cargoes would be resold to buyers in other countries, the person said.“It’s interesting to see new coal deals that have been done recently, despite no clear signal that China’s ban on Australian imports will be canceled any time soon,” said Monica Zhu, a dry bulk analyst with Kpler. “These are individual trader activities and may not represent the mainstream market.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Oil declined the most in a week with rising U.S. crude stockpiles seen as an obstacle facing a market that is still recovering from a pandemic-induced demand slump.Futures fell 1.6% to the lowest level in nearly two weeks in New York on Friday. A U.S. government report showed domestic crude inventories increased for the first time since December, rising more than 4 million barrels last week. However, the data also showed refiners processed the most crude since March, an encouraging sign.“This is clearly a bearish number short-term,” said Quinn Kiley, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. But the data “suggest demand has recovered a lot more than maybe people would have noticed.”A stronger dollar on Friday also reduced the appeal of commodities priced in the currency.Following crude’s strong start to the new year, prices have struggled to break out to new highs this month with restrictions in place to curb the spread of Covid-19. Parts of Hong Kong are locking down and the U.K. prime minister is signaling restrictions may last for months, while New York’s governor said the state is on the verge of running out of Covid-19 vaccines.“The oil market has thus far managed to shrug off the ongoing and strict lock-down conditions that persist throughout much of Europe,” Ryan Fitzmaurice, commodities strategist at Rabobank, said in a note. “But the risk of renewed lockdowns in Asia will be extremely hard for the oil market to ignore.”Crude’s market structure has remained firm this week, with key timespreads for both West Texas Intermediate and Brent crude trading in a structure indicating supply tightness. The nearest contract for WTI futures is trading at a premium to the following month, with the Energy Information Administration report showing stockpiles at the nation’s largest storage hub in Cushing, Oklahoma, fell the most since May. Brent’s nearest timespread is also trading in a so-called backwardation structure.Trafigura Group Chief Executive Officer Jeremy Weir told Bloomberg Television that oil prices will rise on the back of OPEC production cuts and a demand boost from a rebounding global economy. Meanwhile, Goldman Sachs Group Inc. said in a note that the Biden administration’s initial steps, including a focus on fiscal spending and a likely delay in lifting sanctions on Iran, will be bullish for oil prices.Refineries processed the most crude last week since March, when fuel demand weakened early on in the pandemic. Processing a barrel of crude has become more profitable in recent months, with the combined refining margin for gasoline and diesel above $13 a barrel after struggling to hold above $10 a barrel during parts of the summer and fall of last year.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.