OIL FUTURES: Crude pauses as market focuses on China's weak oil demand

Crude oil futures eased in the Asian mid-morning trading day Dec. 10, as a brief price surge from escalating Middle East tensions was quickly eclipsed by concerns over declining oil demand in China— the world's largest crude importer— amid Beijing's shift towards electric vehicle adoption and renewable energy.

At 11.19 am Singapore time (0319 GMT), the ICE February Brent futures contract was down 29 cents/b (0.40%) from the previous close at $71.85/b, while the NYMEX January light sweet crude contract fell 31 cents/b (0.45%) from the previous close at $68.06 /b.

"Moreover, the shift in global energy dynamics, spearheaded by China's aggressive adoption of electric vehicles, continues to reshape demand patterns and temper the broader market outlook," SPI Asset Management's Managing Partner Stephen Innes said Dec. 10.

The crude complex hence, finds little support amid lackluster Chinese demand amid lingering pessimism trailing through the oil markets.

Furthermore, President-elect Donald Trump's resolve to increase US production in 2025, has intensified the bearish sentiment in market fundamentals.

"This recalibration in demand, coupled with projections of an oil surplus in 2025 fueled by ramped-up US production, has traders treading carefully, weighing the immediate price bumps against a complex future landscape," Innes said.

Alongside Trump's aim to incentivize a rise in US oil output, Middle East tensions are anticipated to remain subdued with his impending assumption of the Oval Office next year, thereby eroding any potential gains in the market.

"His presence is expected to deter significant regional destabilization, keeping major disruptions in check," Innes added.

However, on a global scale, Donald Trump's protectionist measures are expected to pressure China's GDP, which may weather down on global oil demand even further, as underlying weakness in the complex continues to build.

"The impending China-US trade war could lead to a fall of 1.5% in China's GDP over the course of the next few years, considering a possible 60% US tariff shock. This estimate is derived from various rigorous academic papers on the 2018-20 China-US trade war," ANZ research analysts, Vicky Xiao Zhou, Zhaopeng Xing & Raymond Yeung, said in a note Dec. 10.

However, potential downswings in the crude complex are being mitigated by the US crude oil inventory draws likely extending in the week ended Dec. 6, analysts surveyed by S&P Global Commodity Insights said Dec. 9, amid continued strong refinery demand.

Total commercial crude stocks likely declined 600,000 barrels over the period to around 422.8 million barrels, analysts said. The draw would be in line with seasonal norms and would hold inventories for a second week at 5.6% behind the five-year average of US Energy Information Administration data.

Total refinery utilization likely held at 93.3% of capacity, analysts said, and refinery net crude inputs were seen unchanged at 16.9 million b/d.

Dubai swaps

The February Dubai swap was pegged at $70.90/b at 10:00 am Singapore time (0200 GMT) Dec. 10, edging down 8 cents/b (0.11%) from Dec. 9 Asian market close.

The January-February Dubai swap intermonth spread was pegged at 37 cents/b, down 4 cents/b over the same period, and the February-March Dubai swap intermonth spread was pegged at 27 cents/b, 1 cent/b lower over the same period.

The February Brent-Dubai exchange of futures for swaps was pegged at $1.06/b, steady on the day.