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Oil Markets Are Bracing For A Slew Of Bullish News

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·5 min read
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Chart of the Week

- Chinese refinery runs have dropped to their lowest in the country’s post-pandemic history, declining a whopping 1.2 million b/d month-on-month to a monthly average of 12.6 million b/d.

- As the Shanghai lockdown was supplemented by restrictions in other key demand hubs, it was jet fuel and gasoline demand that saw the biggest impact amid soaring inventories.

- In the first four months of the year so far, Chinese crude demand dropped 4% year-on-year to 13.6 million b/d, with May expected to trend only marginally higher than April numbers.

- News of Shanghai reopening from June 01 onwards has rekindled hopes of a quick Chinese demand rebound, though China’s GDP growth slowing down to 4-4.5% this year might put a cap on that.

Market Movers

- Norway’s Equinor (NYSE:EQNR) and ExxonMobil (NYSE:XOM) launched an expansion drive in the giant Bacalhau field, eyeing a second FPSO, potentially doubling the field’s 220,000 b/d peak capacity.

- French energy major TotalEnergies (NYSE:TTE) joined up with the world’s largest offshore wind developer Ørsted (CPH:ORSTED) to jointly submit bids for the upcoming Dutch offshore wind tenders.

- Brazil’s President Jair Bolsonaro suggested he may tinker with the dividend policy of national oil company Petrobras (NYSE:PBR), only days after the firm decided to hike transportation fuel prices.

Tuesday, May 17, 2022

Oil prices climbed higher this week as the gradual easing of Chinese lockdown rules rekindled hopes that East Asian buying will see strong growth over the summer months. Whilst the European Union is still yet to formalize an agreement on Russian oil and products sanctions, the deal now apparently hinges on just one country, Hungary. If the EU is able to convince Hungary to join sanctions, prices will likely climb even higher. With Libya back on the brink of civil war, OPEC+ underproducing, and West Africa continuing to struggle with disruptions, supply tightness is emerging as the main driver of price growth.

Saudi Arabia Eyes 2027 Capacity Peak. According to Energy Minister Abdulaziz bin Salman, Saudi Arabia is on course to increase its crude production capacity to more than 13 million b/d by early 2027, with increments coming from new Aramco projects and the Neutral Zone which Riyads develops along with Kuwait.

EU Clarifies Terms of Russian Gas Buying. The European Commission stated that European energy firms can pay for Russian gas without breaking the bloc’s sanctions provided they pay in the contractual currency and declare the transaction completed when that currency is paid.

Libya Sees Tripoli Riots Amidst Oil Blockade. Clashes erupted in Libya’s capital after the parliament-approved interim prime minister Fathi Bashagha tried to enter Tripoli, only to withdraw after several hours of intense fighting, making the likelihood of a diplomatic settlement even less realistic.

US SPR Inventories Drop to Lowest Since 1987. Recording a 5-million-barrel week-on-week drop in the week ending May 13, falling to a total of 538 million barrels, the amount of crude stored in the US Strategic Petroleum Reserve has fallen to its lowest in 35 years.

Russia Oil Sanctions Hinge on Hungary’s Approval. It appears that the only EU country that still objects to banning Russian oil is Hungary. The country stated that it would need as much as €750 million ($820 million) to revamp its refinery and infrastructure to be able to phase out crude imports from Russia.

UK Energy Regulator Wants More Frequent Price Cap Reviews. Seeing the country’s power price cap increase by 54% to £1,971 ($2,450) per year, the UK’s energy regulator Ofgem declared that it would prefer to have quarterly reviews on electricity price caps rather than the current bi-annual ones.

Iran to Rebuild Venezuelan Refinery. Iran’s state-controlled engineering company NIOEC signed a $110 million deal with Venezuela to repair the country’s smallest refinery, the 146,000 b/d El Palito in the northern state of Carabobo, also agreeing to supply the refinery once it's re-commissioned.

TotalEnergies Seeks Nigeria Onshore Exit. Joining the ranks of UK oil major Shell (LON:SHEL), French energy firm TotalEnergies (NYSE:TTE) stated that it would consider selling its onshore oil licenses in Nigeria as community disruptions, i.e. crude theft and pipeline sabotage, render operations untenable.

Asian LNG Trends Downwards Despite EU Restocking. Asian LNG prices inched down recently to $23 per mmBtu despite robust European buying to replenish stocks, primarily coming from Chinese demand dropping to new lows amid continuing lockdowns in the country.

Chinese Coal Production Soars Further. China’s coal production jumped 11% year-on-year in April, undisturbed by the country’s manifold movement restrictions, hitting the second-highest monthly level of 362.8 million tons mined amid a widespread government push to produce more.

Wheat Prices Surge on India Export Ban. Following India’s announcement that it would ban exports of wheat as a heatwave crimped its production, Chicago wheat futures soared 6% to $12.5 per ½ a bushel, the highest record levels in early March, amid fears of ever-tightening grain supply.

Aluminum Stocks Continue to Shrink. With LME aluminum stocks already hitting a 17-year low of 530,000 metric tons amid multiple downside supply risks, inventories of the base metal are expected to decline even further as at least half of the current London stocks are off-warrant, i.e. due for delivery.

Peru Sues Spanish Oil Major for $4.5 Billion. The Peruvian government is expected to file a $4.5 billion civil suit against Spanish oil firm Repsol (BME:REP), claiming that an oil spill that took place this January next to the country’s Repsol-operated La Pampilla refinery impacted at least 700,000 people.

By Tom Kool for Oilprice.com

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