Oil price volatility persists amid growing anticipated demand and ongoing geopolitical risks. This week witnessed a surge in crude oil prices, primarily attributed to positive GDP data, adverse weather conditions in the United States, and a stimulus package enacted by the Chinese Government, amplifying expectations for heightened energy demand.
The WTI and BRENT prices experienced an uptick of over 4% this week, contributing to year-to-date gains of 7% for WTI and 6.3% for BRENT. This spike in crude oil prices was fueled by the robust growth in the US economy, surpassing expectations and alleviating concerns of a potential recession in 2024.
Additionally, increasing demand projections for the energy sector played a role in this upward trend.
Geopolitical uncertainties persist, adding a risk premium to crude oil and other commodities. Ongoing conflicts, such as the Gaza war and disturbances in the Red Sea, including Houthi rebel attacks on vessels in the Suez Canal, continue to heighten global tensions. The conflict in Ukraine and an attack on a Russian fuel terminal further amplify uncertainties, impacting prices in the Baltic Sea region.
In Europe and certain Asian regions, Base Oil demand remains subdued, influenced by rising freight costs. Vessel availability and transit challenges through the Suez Canal contribute to pressure on feedstock prices. However, India emerges as a demand focal point, experiencing remarkable GDP growth between 6.7% and 7%, with robust demand for Group II as downstream activities expand.
In the US, demand for GI and GII heavy grades faces constraints, with increasing inventories along the Gulf coast and elevated imports from Asia affecting prices. US producers are adjusting strategies by targeting Europe and Latin America to mitigate inventory levels. While finished lubricants demand exhibits a mixed pattern, expectations point to an increase in the first quarter of 2024. Tightening supply of Bright Stock intensifies upward pressure on prices.
Latin American demand remains stable and is anticipated to grow post the yearend economic slowdown. The market for finished lubricants witnesses heightened competition as new entrants are attracted by its resilient conditions and competitive price points. However, uncertainty rises with governments implementing new policies on petroleum extraction, oil derivative refining, and procurement.
In Venezuela, the local finished lubricants market is poised for growth as the government implements tariffs on imported products to incentivize local production. Meanwhile, environmental policies in Colombia concerning petroleum extraction contribute to supply uncertainties and boost the market for imported products. Overall, the landscape for Royal Petroleum Corporation reflects a dynamic environment shaped by global economic trends and geopolitical developments.
Author: Sebastian Redondo & Andres Moreno
Royal Petroleum Market analyst
 Argus Base Oil issue 24-04