China is putting fresh pressure on energy markets as global oil prices hover at a key threshold.
Brent crude oil abruptly spiked above $100 a barrel on Thursday, reversing course after earlier declines following a report that refiners in China are suspending exports in October.
Brent crude prices surged nearly 4% to $101.50 a barrel, while US oil prices rose 2% to $92.54.
According to Reuters, Chinese refiners have suspended fuel exports for the month to preserve domestic oil stocks, putting new pressure on a corner of the oil trade already facing a supply squeeze.
“If Chinese barrels disappear from the export market, buyers elsewhere have to compete for an even smaller pool of refined products,” stated Anindya Banerjee, head of research at trading platform Kotek Neo’s currencies and commodities desk.
The export pause isn’t the only complication impacting Brent crude prices. It comes as China, the world’s largest oil refinery hub, enters a week-long holiday. For the month of October, refiners are only authorized to ship oil products to Macau and Hong Kong.
For other customers, the outlook remains uncertain. While oil exports out of the Persian Gulf region of the Middle East have mostly bounced back from the disruption caused by the Iran war, China’s new disruptions could keep a floor under crude prices.
The latst news has potentially dire implications for areas such as diesel and jet fuel, two corners of the energy market already grappling with high prices that are being passed on to consumers. PetroChina, China’s state-run oil major, has already cancelled several October jet fuel and gasoline shipments that it had planned for October.
Diesel is the US has surged to record high prices. The surge in the industrial fuel was described by Bank of America as a “real economy pressure point,” as diesel powers shipping and freight industries that transport consumer goods.
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Banerjee added that China is one of the few nations capable of delivering some relief to the global oil market. In his view, if Beijing continues to prioritize its own domestic energy security, it could lead to deeper problems globally.
“Even if crude periodically corrects on macro headlines, the extraordinarily tight refined-product market should continue to provide an underlying floor to oil prices until refining margins meaningfully cool,” he stated.