It's a mad oil price world

Note: This is not investment advice. I’ve never dispensed any and am unlikely to start now.

Covering oil price movements has always been one of my favourite aspects of writing about energy. It’s fun to compare analyst forecasts and see traders ignore them completely because someone else said something.

It’s also fun, if occasionally annoying, to get feedback such as “You wrote Brent will rise but it actually fell. You suck.” or “Great call, Brent fell when you said it would.”

The fun part: anyone thinking I’m the one making the calls. The annoying part: same.

I’ve been doing oil price coverage for about eight years now. I wish I could say I’ve seen it all but I know I haven’t. I’ve seen my fair share, though, and based on that fair share, I’d say this year has been something special. Here’s why.

1. The China fixation

China is a natural focus for oil traders’ and analysts’ attention. It is, after all, the biggest importer of crude. What China does matters greatly for global oil demand and supply outlooks.

But here’s the thing. Normally, the attention is directed towards both China’s direct demand indicators, such as import rates, refining rates, and export quotas. This year, it seems like everyone was watching something else: economic indicators.

As usual, analysts overestimated China’s growth pace after the end of the pandemic lockdowns. They always do, no idea why. Many also seem to assume that China can expand its economy at a stable rate with a constant upward trajectory. Again, I’ve no idea where this assumption comes from. No economy can do that, even one that is largely centrally planned.

Because China “disappointed” in its actual growth pace and its trajectory, traders sold and sold, and prices fell. Even though China’s oil imports broke records yet again. Even though refiners’ run rates were higher. Even though the fuel export quotas issued so far this year by Beijing are close to 20 million tonnes higher than last year’s.

But the latest PMI was below 50. But property market crisis. But deflation. But consumer spending. Even with the kind of biased reporting on all things China in the corporate media it is surprising that traders are taking such a one-sided view on the country’s demand prospects. (Whatever you or I think about China, reporting is biased. It shows in the adjectives. As if you’re surprised.)

It is because of this fixation on indirect oil demand indicators rather than the direct ones that prices were subdued for much of the year. And now suddenly everyone’s surprised because they remembered there’s also such a thing as supply.