The United Arab Emirates (UAE) will reduce its crude oil exports to some term contract clients in its core market Asia by 5% in December.
What Happened: According to Reuters, Abu Dhabi National Oil Company (ADNOC), the largest oil company in the UAE that exports almost all of the oil in important OPEC member states, has informed customers in Asia that the 5% drop is a part of an "operational tolerance clause."
According to that clause, due to logistical reasons, the export volumes could be modified to 5% higher or lower than the contracted numbers.
The UAE's reduced shipments come at a time when China's demand is waning owing to new Covid limitations.
Oil prices have also fallen recently due to worries about a deeper Chinese demand downturn on top of other recessionary concerns.
But in the past month, the exports of crude oil from the UAE, Saudi Arabia, and Iraq to China surged, increasing their market share in a market that Russia has pushed into as a result of the invasion of Ukraine.
In October, crude oil from the Middle East was loaded for Chinese consumers at a rate of about 4 million barrels per day, which is roughly the amount the ADNOC can produce.
Why It's Important: Oil equities were heavily traded at Monday's open, tracking oil prices that had fallen to around 12-month lows due to concerns over more disruptions in demand and production due to demonstrations in China.
On Monday, U.S. crude oil prices dropped by roughly 3% to approximately $74 per barrel, temporarily reaching its lowest point since December 2021.
Following news Monday that hundreds of demonstrators marched in Beijing on Sunday, with more demonstrations taking place in Shanghai, oil prices, which had reached highs of $130 per barrel in March, began to decline.
Protests in China boil over as President Xi Jinping maintains a tough zero-Covid policy, with recurrent lockdowns, physically forced testing, and other measures. Online footage of the protests were widely shared over the weekend, according to reports of large rallies around the nation.
China is a top crude importer and an important indicator for the global oil demand outlook.
The Trade: Exxon Mobil Corp XOM and Chevron Corporation CVX, two of the largest energy companies, along with other U.S. oil stocks, suffered early losses. 15 of the 20 worst-performing equities in premarket trading on Monday morning for the S&P 500 were oil-related stocks.
Oil stocks Diamondback Energy Inc FANG, Occidental Petroleum Corporation OXY, and Devon Energy Corp DVN all had a more than 3% decline together with XOM and CVX.
Halliburton Company HAL, Schlumberger NV SLB, and Baker Hughes BKR all experienced a 2% to 3% decline in early trading.
Last Word: After the White House on Saturday loosened oil sanctions against Venezuela, U.S. oil prices also came under some pressure.
Following the signing of a human rights pact between President Nicolaus Maduro's government and opposition negotiators, the Biden administration declared it would permit Chevron to resume oil production in the country of Latin America.
According to the license agreement, Chevron is allowed to export oil only to the United States for a period of six months.
Meanwhile, OPEC is getting ready for its Dec. 4 meeting to decide on oil production as China's economy remains uncertain.
After reducing production by 2 million barrels per day in November, OPEC and its allies, including Russia, might maintain a tight supply to control the market.
As the E.U. and the U.S. move to tighten sanctions against Russia in response to the conflict in Ukraine, the G-7 is also preparing to enforce a price ceiling on Russian oil supplies by Dec. 5.
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