Crude oil continues to trade around 71/72 while gold hovers around 1070/1075 in European morning. Stock markets and the euro also stabilize after the slide last Friday.
Oil demand in China looked robust in 2009. According to the International Energy Agency (IEA), the apparent demand (refinery output + net oil product imports) rose +1.6% yoy in November. While the December reading may even be stronger, investors should beware that the impressive performance has been largely driven by jet fuel/kerosene, naphtha and ‘other products’. Moreover, China has turned from a net importer to a net exporter of gasoline and diesel in 2009. Rapid expansions in refinery capacities have raised concerns on fuel surplus.
China is expanding the refinery capacities at a rapid rate. For instance, a new JV by Sinopec, ExxonMobile, Saudi Aramco and the Chinese government in Fujian will more than triple original capacity. Together with the fact that domestic demand will continue to lag behind capacity addition, China’s reliance on oil product imports.
In 2011, we expect china’s demand for crude oil will remain strong. However, as long as the pace of refinery expansion and operation rates remain high, refinery margins will remain suppressed. Moreover, until domestic oil product demand in China catches up with refinery production, the country will continue exporting refinery products, thus pressuring global refinery margins.
We have a relatively light calendar this week. The US will release the monthly budget statement for January later today. Consensus forecasts widening of deficit to -$70B in January from -63.5B the same period last year. Retail sales will be released Tuesday. The report will probably show modest increase of +0.3% mom in January. Sales excluding autos should have grown more strongly. The BOE will publish the quarterly inflation report Wednesday while the Eurozone will release preliminary results for 4Q09 GDP.
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