Why can Oman’s crude oil meet Asia’s developing oil demand?
The COVID-19 pandemic and its impact on economic expansion have triggered a prolonged era of oil price volatility. While oil prices were on a broad upward trajectory in 2021, price fluctuations continued to be a feature of the market in the face of continued uncertainty created by the pandemic.
For example, the value of West Texas Intermediate (WTI) fell from $78 per barrel to less than $65 per barrel following the appearance of the expired Omicron variant in November 2021. It then touched $130 a barrel in March 2022 at geopolitical events. in Europe, as China continues to experience the first COVID food lockdowns.
This era of oil value volatility coincides with the development of demand for derivatives among Americans and companies in Asia, namely China. Market participants use long-term commodity securities to control value volatility and currency risk. Pacific exchanges rose 51. 6% year-over-year in 2021, the largest accumulation of all regions, according to the Futures Industry Association (FIA).
Despite the continued disruptions caused by the pandemic and the impact of closures on economic activities, oil demand in China has remained strong. in Europe during the same period, according to OPEC’s monthly oil market report.
OPEC expects demand in China to remain physically strong this year, even with existing city closures, forecasting that intake will accumulate at 0. 66 million barrels per day (mb/d) in 2022 thanks to solid economic expansion and recovery in demand from the commercial and transport sectors. Other Asian countries, with the exception of India, are not far behind, with OPEC reporting an increase in demand of 0. 55 mb/d in its February report, representing a jump of just over 6%.
Only a part of this accumulation in demand will be fulfilled at the national level, the rest will be imports. China is dependent on oil imports from the Middle East, with imports from the region expanding 4. 8% in the first quarter of 2022, accounting for 53. 8% of China’s crude oil supplies. Saudi Arabia was China’s largest supplier of crude oil, while Russia ranked prominently, despite a 14. 1% drop in imports, with Iraq being third and Oman the fourth largest supplier. Overall, Oman’s imports increased by 4. 7% in the first quarter, compared to the same era in 2021.
While China is Oman’s largest importer of crude oil and accounts for 86% of its exports, according to its 2021 Statistical Yearbook, all of Oman’s most sensitive oil export destinations are in Asia; India ranks second, followed by South Korea and Japan.
As geopolitical events continue in Europe, it remains to be seen what impact it will have on Russian exports in the Middle East.
Asia’s growing reliance on Middle Eastern crude, combined with the futurization of oil markets, has accelerated the need for reliable sour crude futures. Oman has experienced political stability in recent decades, allowing it to increase its crude oil production and exports. Meanwhile, Oman crude has also established itself as a benchmark for quality for the Middle East and Asian markets.
The Dubai Mercantile Exchange (DME), in which CME Group holds a 50% stake, was founded in 2006 and introduced its main Oman crude oil futures contract in 2007 to provide a transparent crude oil benchmark for the region. In the same year, Oman followed DME’s value as the official sales value, followed by the Dubai government. More recently, in 2018 and 2019, the national oil corporations of Saudi Arabia, Bahrain and Kuwait added DME Oman to their pricing formulas due to their normal trade volumes and use through foreigners. gamblers
As a result, Oman’s crude has a vital component in designing the value of 5. 5 million barrels of crude exported daily from the Middle East to Asia.
Oman’s DME futures price is also an integral component of the Chinese retail fuel value crude basket used by China’s National Development and Reform Commission, along with WTI and Brent, to measure China’s gas and diesel values. This component further strengthens the prestige of Oman crude DME futures. as a hedging tool for the Asian market, i. e. for end-users whose refining margins are directly affected by changes in value.
DME Oman crude oil futures remain the world’s only acidic physical delivery crude oil futures, making them a hedging tool for corporations exposed to Middle Eastern oil and global oil speculative traders.
Oman crude has been the de facto benchmark for caramel crude for exports to East Suez for several years and the creation of DME Oman’s futures value has greater transparency and relevance for Asia. DME Oman is now a vital benchmark pricing tool for measuring crude oil alongside other global crude oil benchmarks such as WTI and Brent.
DME Oman faced tight stress control in 2020 when global oil demand fell by as much as 30% as the COVID-19 pandemic slowed economic activity. However, the contract was able to face unprecedented volatility, a fact that was identified through the market. Participants. Compared to other price points, Oman’s DME contract has also reflected market basics during the pandemic, while maintaining liquidity and stability. This allowed it to emerge as a more potent reference.
Oil value volatility is expected to continue in 2022 due to a combination of source issues, difficulties forecasting demand due to the ongoing pandemic situation, and emerging interest rates as central banks pursue inflation, which may lead to a strengthening of the US. U. S. dollar.
As a result, the need for hedging methods among oil consumers is very likely to increase. DME Oman’s crude oil futures are an effective threat mitigation tool for Asia, given its dependence on oil imports from the Middle East.
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