Demand fears fail to keep oil prices below $90

Bearish sentiment has gripped oil markets recently, with fears of demand destruction and rumors of a new nuclear deal driving prices lower. Sharp declines in U.S. inventories have since lifted prices, but downward pressure remains.

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Friday, August 19, 2022

Oil prices had a nightmarish start to the week, plunging no weak Chinese economic data and speculation that an Iran nuclear deal could materialize. Fortunately for oil bulls, sharp declines in US inventories across the oil and commodities spectrum have eased fears that demand destruction could wreak havoc on domestic demand. WTI and Brent bounced on the news.

OPEC blames politics for lack of spare capacity. New OPEC Secretary General Haitham al Ghais says policymakers and insufficient investment in the oil and gas sector are to blame for the current streak of high prices, not OPEC, which does not has not been affected by domestic pressure to stop oil projects.

Asian LNG prices are trying to catch up with Europe. With LNG supply remaining relatively limited this year, Asia and Europe continue to compete for oscillating liquefied volumes and despite Asian spot prices reaching a record high of $57/mmBtu, they still remain approximately $20/mmBtu at European prices.

The Russians lure the Japanese into Sakhalin-2. After forcibly domesticating the operating company of the Sakhalin-2 LNG project in the Russian Far East, the new management has pledged to maintain production and fulfill all existing obligations, with the aim of maintaining Japanese trading companies Mitsui (TYO:8031) and Mitsubishi (TYO:8058) in the project.

Drought cuts off European refining. Extremely low water levels along the Rhine (ships touch the river bed even when empty) have forced major British energy companies Shell (LON:SHEL) to curb refineries at its 350,000 bpd Rhineland refinery, citing difficulties transporting goods across the river.

ExxonMobil enters Indian deep waters. American oil major ExxonMobil (NYSE:XOM) partnered with india CGSB (NSE:CGSB) to focus on deep-sea exploration on the east and west coasts of the South Asian country, attracted by India’s desire to reduce its dependence on imports amid rapidly declining domestic production.

EU coal sanctions inadvertently ban fuel oil. The EU embargo on Russian coal, which came into force last week, could also end the supply of heating oil prematurely, as heavy distillates containing more than 50% aromatics fall under the same customs code as coal.

California buckles its belt in the face of extreme heat. Californians are being urged to ration electricity use as an extreme heat wave is expected to stretch the state’s power grid to the max, with demand expected to exceed 45 GW, a level last seen in September 2020.

Force majeure paralyzes production in Nigeria. No Brass River shipments leaving Nigeria for more than a month, Italian oil company ENI (NYSE:E) admitted that the flow has been under force majeure since June as illegal oil extraction keeps the flow at a fraction of its previous volume.

Russia expects an increase in revenue of nearly $100 billion. According to Russia’s Economy Ministry, government revenue from energy exports will rise 38% year-on-year to $337.5 billion this year, supported by soaring natural gas prices and rising oil export volumes.

Biden’s decision to suspend oil leases gets tangled up. A U.S. Circuit Court of Appeals has overturned the Louisiana District Court’s decision to block the Biden administration’s pause on new oil and gas leases announced in January 2021, dampening prospects for any rapid license changes in a near future.

Nigeria sees nationwide blackout amid strikes. The Transmission Company of Nigeria launched a strike this week over unfair terms of service and pay, triggering power outages across the country, but the strike was suspended for two weeks a day later after authorities promised to start talks.

Santos puts his neck on the line for Alaska oil. Australian oil company Santos (ASX:STO) surprised industry watchers by deciding to go ahead with its $2.6 billion Pikka project in the Alaska North Watershed after failing to find buyers for the asset, which is expected to now start producing by 2026.

Venezuela helps Cuba rebuild a destroyed port. Following a devastating lightning-triggered explosion that destroyed the Cuban supertanker Matanzas, the Latin American country’s main storage hub for crude and products, Venezuela has pledged support to rebuild it.

US refiners dismiss recession fears for now. Arguing that there are few signs of demand destruction and that inventories are still below their optimal state, U.S. refiners are expected to maximize refining cycles over the coming weeks, with analysts expecting a national average 94%, in line with the second quarter.

By Michael Kern for

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