Oil prices moving in response to China's weak demand, output

Crude oil prices (CL=F, BZ=F) tick higher Monday morning after China reported weakening demand and oil refinery outputs.

"One of the things that a lot of people are missing, I think with China is how it's transitioning to more of a consumer-based economy rather than an industrial-based economy... it's trying to decrease energy intensity. So actually, I think you can read [that] demand, or... some of that data that came out today is relatively constructive," Energy Aspects Oil Analyst Christopher Haines tells Yahoo Finance.

Haines discusses the summer catalysts that could be pivotal to oil price patterns, stating there are "a lot of potential levers that could still be pulled if prices do get high."

Haines also comments on President Biden's bid to re-open US oil reserves if price pressures run too high.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Luke Carberry Mogan.

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Video Transcript

Oil prices are higher today.

This comes after crude prices saw their first week we gain in about a month.

Now down the economic data out of China sparking fears that oil demand could falter even further.

Joining us for his outlook on the sector.

We have Kit Haines energy aspects, global crude lead kit.

Thanks so much for being here.

As you heard, we were just talking about the demand picture in China continuing to weaken.

To what extent do you think that that could drive oil prices moving forward here?

I mean, look, I I just saw uh what you uh what you're posting and I I think your focus was there was more on the um industrial output side.

But actually if you, if you do look at the retail side, it has been improving.

And one of the things that a lot of people are missing, I think with China is how it's uh transitioning to more of a consumer based economy rather than uh an industrial based economy.

You know, it's trying to decrease energy intensity.

So actually, I think you can read those demand, uh all that some of that data that came out today is relatively constructive.

But I think, you know, as we go into like the second half of this year, um, is it gonna get any worse?

I don't think so.

I think we're, we're looking at a good point now for uh global demand heading into the summer.

Uh And for China in particular, you know, I think, um uh we have a couple of specific things like heavy rains, uh the fishing ban coming up and that's gonna kind of dampen, that's kind of dampening some of the sentiment around particularly diesel demand at the moment.

But I think heading into uh you know, August, September time, uh things are gonna look a lot better.

So, uh we're relatively constructive on, on that outlook.

So, Kate, it does sound like you see a tighter market at least in the near term.

So what ultimately is that going to do to prices here over the next couple of months?

Look, I, I don't think we're gonna rock it higher, but I think, um you know, just if you look at fundamentals, um we're gonna have higher, higher runs, higher demand going into the summer.

And that's, it's kind of a uh a relatively seasonal thing.

So I think from where we are right now, we've just been in probably one of the, in the weakest demand point of the year and we pick up into the summer.

So, um, you know, uh if you look at some of the flight data, some of the travel data um and this isn't, you know, this isn't just in the U si think it's in um all parts of the world, Europe's looking pretty good, even China in terms of um uh gasoline demand and uh jet demand is looking very good.

So, uh you know, we, we see things picking up um probably moving towards the uh highs that we saw earlier this year, but I don't think beyond that.

I think um there's a lot of things in play.

Um A L A lot of potential levers that could, could still be pulled if prices do get high, such as an spr release that I think Amos Hochstein was talking about yesterday.

Well, let's talk about that.

According to the FT here, Biden is ready to reopen us oil reserves if gas prices jump, that is of course heading into the election.

How much is that potential move from the Biden administration already priced in?

Yeah, I mean, look, I think the that announcement kind of uh does go towards capping your upside in prices.

I think people are gonna be looking at the opportunity here.

Um You know, your Brent's trading around 83 $83.

Yeah, it's probably, you know, 5 $10 of upside there.

Um But I think if we do head into the nineties, that's when people start to kind of look at, um, you know, are we too high?

And what can we do to try and, um, you know, stem the rally here.

So I think that's, that tends to be, uh, that range, I think 80 to $90.

Most people are relatively happy with it when we go above that.

That's, that's when, um, we start to see red flags.

Ok. We've seen the market, uh, largely shrug off the geopolitical risk aspect of this.

Is this something that you think investors maybe should be paying a bit more attention to?

And ultimately, how do you see that impacting prices here over the coming months?

Yeah, it's a good, it's a good point.

And I mean, I think some of the, you know, geopolitical tensions we've seen this year haven't, uh, really sparked the kind of reaction we'd expected to.

But I think um, oil investors are getting more savvy to the market after what we saw in 2022 where, uh, you know, the, the sanctions put in place on Russia, a lot of people were expecting us to lose a huge amount of oil and at the end of the day we didn't.

So I think what we're seeing now is people reading this market as, um, ok, we're, you know, we're not going to put a risk premium on until we actually see an impact on production.

And uh a lot of the geopolitical risks at the moment aren't impacting production.

You know, like the, the Houthis are causing disruption with uh shipping and you know, obviously Israel Gaza is a, a pretty, pretty big thing at the moment.

And, uh, Russia Ukraine, of course, but none of it is actually, um, taking any oil out of the market.

So, for now, um, I think that's, it's priced as, as it should be.