UAE energy minister says oil market 'stable,' eyes Chinese demand comeback

Sanctions and a price cap on Russian crude have not squeezed the oil market, which is "stable" at the moment, UAE energy minister Suhail al-Mazrouei said Jan. 14.

In fact, OPEC and its allies are looking to a potential demand boost from China, when a key committee meets Feb. 1 to review the impact of the group's production cuts on global supply-demand balances.

"The market is a bit stable, and we think the decisions we took have been a good decision and an indication of the stabilization that we are seeing," Mazrouei told reporters on the sidelines of Atlantic Council's Global Energy Forum in Abu Dhabi when asked about the impact of the Russian sanctions and price cap.

"Now with China opening, hopefully we will see a pickup in demand and when we meet, we will analyze that as usual. We always take the decision that serves the balancing of the market."

The OPEC+ Joint Ministerial Monitoring Committee, on which Mazrouei sits, is co-chaired by Saudi energy minister Prince Abdulaziz bin Salman and Russian Deputy Prime Minister Alexander Novak. Its upcoming meeting will be its first since OPEC+ ministers agreed Dec. 4 to maintain a 2 million b/d cut to production quotas through the end of 2023, despite the EU's implementation of a ban on seaborne imports of Russian crude and the G7's introduction of a $60/b price cap a day later.

The EU and G7 are now set to expand those measures to cover Russian refined products on Feb. 5, just after the JMMC meets, though final details have yet to be settled.

Mazrouei declined to comment on how Russian oil volumes going forward would be affected by the price cap and sanctions, saying these factors are external and "outside our control."

In response to the Dec. 5 oil price cap, Russia issued a presidential order Dec. 27 banning the sale of crude to countries that observe the price cap from Feb. 1. Russian officials have said that further details on how the ban will be implemented will be released in the near future.

The G7 price cap on Russian cargoes has yet to have a major impact, with key grade Urals trading well below the $60/b threshold in recent weeks.

Platts assessed on Jan. 13 Urals at $43.3/b, up 1.06% on the day, according to S&P Global Commodity Insights data. It was assessed at $52.15/b on Dec. 5.

Meanwhile, Dated Brent was assessed at $83.325/b on Jan. 13, up 0.60% on the day, according to S&P Global. The marker is still below the $85.59/b level it reached on Dec. 5.

Minimal impact

Despite the G7 price cap and EU ban, Russian crude production was only down 10,000 b/d month-on-month to 9.86 million b/d in December, according to the latest Platts survey by S&P Global. Although its crude exports were crimped severely by new sanctions, Russia boosted runs at its refineries and filled its storage facilities to keep its taps flowing, survey participants said.

Analysts at S&P Global expect Russia's supply losses on crude output to peak at 930,000 b/d below pre-war levels in March due to pending sanctions on fuel exports before production rebounds 400,000 b/d by the fourth quarter of 2023.

Russia estimates that its oil output may fall 5%-7% in 2023 as a result of the sanctions.

The EU's ban on Russian oil product exports will transform markets and change trade flows in a manner more complex than the impact of the sanctions on seaborne Russian crude, Tim Gould, chief energy economist at the International Energy Agency, said Jan. 11.

However, China's re-opening could upend oil markets.

China re-opening

In 2023, China's crude imports are set to rebound by around 800,000 b/d year on year to meet demand amid a healthy growth in GDP, with both the 320,000 b/d Shenghong Petrochemical and PetroChina's 400,000 b/d Guangdong Petrochemical complex commissioning volumes, said analysts based in Beijing and London.

China's re-opening is offset by a resurgence of COVID-19 infections, which may depress demand in the short-term.

China removed all the domestic movement controls in December, leading to an estimated 80% of the population in big cities being infected with COVID-19, according to S&P Global and market analysts. The rising cases of new COVID-19 infections have kept people at home and dampened demand for oil products, leaving more barrels available to export. However, export volumes in December have remained below the high of 8 million mt in April 2022.

China's oil product exports rose 138.7% year on year to hit a 32-month high of 7.7 million mt (1.02 million b/d) in December 2022, data from the General Administration of Customs showed Jan. 13, as domestic demand weakened amid the strongest wave of COVID-19 infections and sufficient export quotas.

In 2022, total exports were down 11% on the year at 53.69 million mt due to the 40.7% year-on-year decline over January-June.