February 2023 - Portland Fuel

Monthly Pricing - 01/02/2023

Brent crude started the year at $82.26/bbl and proceeded to fluctuate at around $80/bbl in early January, as the recovery in demand from the growth of the Chinese economy grappled with increased market concerns of a global recession. However, Brent crude then started to increase towards the end of the month, peaking at $88.19/bbl in the last week before ending January at $86.66/bbl, as supply fears surrounding the upcoming sanctions on refined Russian products started to impact the market.

GBP started the year close to its lowest point in over a month, trading at $1.205 against USD and it continued to hover around this level for much of the first week of 2023. However, GBP started to steadily increase throughout the rest of January and ended the month at $1.235 against USD, it highest point in over 6 weeks, as a softer dollar caused by an economic slowdown in the US supported a stronger GBP, along with statements from BoE to suggest that further interest rate hikes were still to come to combat inflation, despite fears of a global economic recession.

January has seen China go from strength to strength as it continues to rebuild its economy as the world’s top crude importer, following over 3 years of stringent COVID-Zero lockdown restrictions disrupting regular business. Towards the end of the month, China reported that COVID related deaths were now 70% lower than the peak levels recorded in early 2023 and that crude imports had increased by 4% YOY for December. However, fears of a global economic recession threatened to dampen the demand outlook, just as upcoming EU sanctions on refined Russian products threatened supply levels, with restrictions due to come into force on February 5th.

Price Drivers

Supply As the latest round of sanctions against Russia are due to take effect from February 5th, the EU has proposed a cap of $100/bbl on premium Russian refined products, including diesel and a lower $45/bbl cap on cheaper products such as fuel oil. In early January, the US was hit by Storm Elliott, a blizzard causing numerous supply issues along the Texas Gulf Coast and resulting in a loss in production of as much as 1million bpd. Some sites took as long as 3 weeks to restore full power.

Demand The demand outlook improved in the first month of 2023, largely on the back of the ongoing economic recovery in China, with both the IEA and OPEC voicing bullish predictions for demand levels across the rest of the year. Despite news of economic growth in Q4 2022 in the UK earlier this month, its latest PMI results showed that the UK economy had slowed faster than expected in January, with similar results in the US & Europe all suggesting a potential global recession.

Geo-Political Towards the end of January, Kazakhstan was granted approval by Russia to transport 300k tonnes of oil to Germany using Russia’s Druzhba pipeline infrastructure, with a total planned volume of 1.5mil tonnes for 2023. President Putin responded to the promise of new European tanks to the Ukrainian war effort by saying that it will lead to a “new level of confrontation”, as Germany and the US both promise to send tanks to Kyiv in the coming months.