Chinese demand fuels crude oil prices

Crude oil prices are higher this morning, supported by a weaker US dollar and signs of increasing Chinese crude oil demand. The greenback has slipped from $1.4833 to $1.4972 against the euro this morning, supporting the energy complex.

Of note, the rolling correlation (on a 5-day basis) between the trade-weighted dollar and front-month WTI crude oil has climbed from 60%, on Friday, to 70% this morning. Front-month WTI crude has subsequently climbed from $77.70/bbl to $78.50/bbl this morning. Support and resistance are at $76.90/bbl and $79.30/bbl respectively for front-month WTI crude oil today.

On the demand side, Chinese Customs data showed a 31% m/m contraction in net gasoline exports to 344,885 in October which may indicate growing domestic Chinese gasoline demand. The data also showed China’s oil processing climbed to a record high in October at 33.3 million tonnes. This comes as the country’s economic recovery rekindled crude and refined product demand.

Front-month ICE Brent crude oil also garnered support in Asia this morning, climbing from $77.80/bbl to $78.32/bbl ahead of Euro-zone and German PMI Manufacturing data. Both indicators were in-line with expectations signalling continued expansion (from a very low base) in Euro-zone manufacturing. The data added to support for ICE Brent Crude futures.

Weaker crude oil prices on Friday and signs of weaker Chinese coal import demand weighed on thermal coal contract prices. API2(CIF ARA) for December delivery shed $0.95/mt to $77.90/mt. API4(FOB) for December delivery shed $0.95/mt to $68/ mt. Due to small coal mines resuming operations in China, the country’s net coal imports contracted 13.7% m/m in October to 9.09 million tonnes. Concerns over rising Chinese domestic supplies may see coal prices lag any rally in crude oil.

Carbon contract prices also came under pressure on Friday amid weaker crude and German base load power prices. ICE EUA for December 2009 delivery was EUR0.34/mtCO2 lower at EUR13.06/mtCO2. UN-backed CER for December 2009 delivery shed EUR0.06/tmtCO2 to EUR 12.19/mtCO2.

Courtesy: Commodities Research, Standard Bank