Disappointing Chinese demand weighs on oil prices

Uncertainty surrounding the Iran nuclear deal and disappointing Chinese crude demand and refinery throughput are creating headwinds for crude.

Chart of the week

Can the German economy go down the drain?

– Investor confidence in the German economy has fallen to its lowest level in at least a decade as market gloom outweighs the impact of COVID-19 as German households face another challenge, an annual tax on $300 gas to help gas retailers stay afloat.

– The full-scale impact of economic headwinds has yet to be felt – The German economy stagnated in the second quarter and the IMF lowered its economic growth projections to 1.2% in 2022 and 0.8 % in 2023.
– The extremely low water level of the Rhine, the choke point for shipping at Kaub has not been so low since the early 1990s at this time of year, sends coal prices skyrocketing and petroleum products in the southern regions of the country.
– Tomorrow’s winning call from major gas company Uniper (ETR:UN01) – already bailed out by the government for $15 billion – will be a harbinger of future developments, with expectations going from bad to worse.

market movers

– The Russian State Gas Company Gazprom (MCX:GAZP) warned that gas prices could rise another 60% to $4,000/Mcm amid reduced production and exports, which could indicate there will be no upside drastic change in Nord Stream 1 flows.

– Activist energy investor Kimmeridge Energy Management amassed a 4% stake in California Resources (NYSE:CRC) recently and pushed for policy changes, including acreage sales for real estate purposes.

– According to British energy major Bloomberg BP (NYSE:BP) will soon exit its Mexican oil assets as it continues to shift to renewable energy.

Tuesday, August 16, 2022

Last week’s oil trade ended on a bullish note – US inflation data surprised on the upside and demand appears to be picking up nicely. What a change many days can bring, as weak Chinese macro readings have added much more downside pressure, causing headaches for global policymakers. Not only has China’s crude demand and refining cycles been at their lowest in the post-pandemic period, but its industrial activity in July also rose less than expected at 3.8%. Add to that the lingering uncertainty surrounding a potential Iranian nuclear deal and you’ll inevitably see why the bears have taken over this week, with Brent crude futures falling to $92.60 a barrel.

Chinese refining always disappointing. The Chinese refinery is running fall at the lowest daily rate since March 2020 at 12.53m bpd, down nearly 1m bpd, surprising many oil market participants who expected a strong post-lockdown recovery, although extended maintenance may have played a role.

The Permian reaches another record. Cementing the reputation of the Permian Basin as the engine of increased crude production in the United States, oil production in the largest shale play in the United States is expected to reach a level registration 5.408 million b/d in September according to the EIA, or 60% of the country’s shale production.

Saudi Aramco shows maximum capacity coming soon. Announcing net profits of $48.4 billion in the second quarter, Saudi Aramco chief (TADAWUL:2222) Amin Nasser claims the company is ready to increase production to its maximum capacity of 12 million bpd if asked by the government.

Related: Barclays cuts oil price forecast to $103 a barrel

PEMEX needs an additional $6.5 billion for the refinery. The Mexican state oil company PEMEX demand Another $6.5 billion in additional funding from his government for the 320,000 bpd Dos Bocas refinery, bringing the price of the commissioned but still unfinished refinery to nearly $15 billion.

Cracks are again appearing in the Iran deal. As oil markets recently warmed to the possibility of an Iran deal, the US State Department cooled dispel some of that optimism by saying that Iran must drop its foreign demands that go beyond the scope of the JCPOA.

PDVSA stops oil-for-debt payments. The Venezuelan national oil company PDVSA has suspended crude deliveries to European companies under an oil-for-debt deal, instead asking Eni and Repsol for products as the Latin American country struggles to get its refineries back up and running.

Chinese regions see first power cuts in industry. The Sichuan Regional Government started rationing Industrial power consumption amid its worst heat wave in 60 years, heavily impacting lithium producers Tianqi Lithium (SHE:002466) and Sichuan Yahua (SHE:002497) as well as several large aluminum smelters.

Electricity prices in Germany are at historic highs. Paralyzed by extremely low Rhine levels hampering the usual coal flows and ongoing feuds over Nord Stream 1, the German 2023 futures contract hit a new all-time high of €508 per MWh.

The Nigerian military is stepping up its fight against theft. Nigerian authorities have declared If the country’s military steps up its efforts to fight the thieves ravaging pipelines in the Niger Delta region, NNPC would lose up to 400,000 bpd to theft and sabotage.

Big Oil set to pass IRA climate bill. Oil majors and mid-sized independents have said they are ready to exploit the provisions of the Cut Inflation Act, providing a new base credit of $17/tonne for carbon capture and storage facilities which should be in high demand.

Soaring US exports increase transportation costs. The widening Brent-WTI gap adds further attraction to U.S. crude exports around the world, but increased demand for Aframax tankers has also pushed freight costs to Europe to nearly $6 a barrel, making perhaps VLCC deliveries to Asia more profitable.

Norway keeps hydroelectric power for itself. Faced with multi-year low water levels and high demand, Norway has decided to prioritize the domestic market over exports, which has another blow in the UK which relied on the abundant Norwegian hydroelectric power to meet demand in times of low winds.

Nickel trade still fails to recover from March blowout. According According to Reuters, the volume of nickel traded on the London Metal Exchange fell 40% year-on-year in July to 34,962 lots in total, marred by the week-long suspension of trading in early March that led to the cancellation billions of dollars in transactions.

By Tom Kool for Oilprice.com

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