Brent crude held above $90 per barrel at the beginning of the week after OPEC+ announced a tiny, symbolic output cut.
Chart of the Week
Demise of Gas Paves the Way for Reenergized Coal Sector
- Coal prices across all continents have soared to all-time highs this week, almost triple of what it was a year ago, as uncertainty over gas flows in Europe and stagnant LNG volumes favor “king coal”.
- Asia’s benchmark contract, the ICE Newcastle futures, jumped to $463.75 per metric ton on Monday, whilst spot physical coal loaded in Australia was priced only a $30/mt lower.
- Oddly enough, the coal price rally might still see further upside as La Nina weather events might impact the supply side, especially with rainfall-driven weather disruptions in Australia.
- In Europe, the rebound in gas prices triggered by Gazprom’s halting of Nord Stream-1 flows, with front-month spot prices around $75/mmBtu, has pushed the 2023 yearly API2 coal contract to $340/mt.
Market Movers
- EQT Corp. (NYSE:EQT), the largest dedicated gas producer in the US, is nearing a deal with peer firm THQ Appalachia, a producer of some 760 mcf per day, for around $4 billion.
- U.S. royalty company Sitio Royalties (NYSE:STR) said it would buy oil and gas rights firm Brigham Minerals (NYSE:MNRL) for $4.8 billion in an all-stock deal, expected to close by Q1 2023.
- Germany’s largest gas importer Uniper (ETR:UN01) signed a 16-year deal with Australian LNG exporter Woodside (ASX:WDS) for the supply of 1 bcm of liquefied natural gas, biting into volumes traditionally going to Asia.
Tuesday, September 06, 2022
OPEC+ is reimagining its role in the oil markets and even though its promise of a tiny cut certainly does not impress outright, one should never underestimate the geopolitical symbolism of its actions. By signaling that the oil group is eager to make swift changes in case geopolitical realities change (ehm, Iran), the lower October production target is also a mirror into the Middle Eastern psyche – as oil started moving closer to the fiscal breakeven levels of Saudi Arabia or Iraq, maintaining crude prices within the $90-100 per barrel bandwidth will remain a top item on the OPEC+ agenda.
OPEC+ Brings End to Era of Production Hikes. OPEC+ agreed to cut collective output by 100,000 b/d, reversing the oil group’s decision from last month, marking the first month in more than two years when they curb production targets amidst unprecedented price volatility.
Iran Talks ‘In Danger’ Again. The EU’s chief negotiator in the nuclear talks with Iran, Josep Borrell, stated that the negotiations are in danger as Washington and Tehran started diverging on several contested points, most notably guarantees that the US cannot withdraw unilaterally again from the JCPOA.
EU Wants to Cap Russian Pipeline Gas Prices. The European Commission is looking into ways to cap the price of Russian pipeline gas that has been intermittently exported by Gazprom (MCX:GAZP), though some countries remain wary of such measures, fearing a total cut off in retaliation.
New UK Prime Minister Faces $150 Billion Dilemma. Liz Truss, the new prime minister of the United Kingdom, is considering ways to freeze households’ gas and electricity bills at the current maximum level of $2,281, avoiding another 80% hike set to materialize this October, in a $150 billion move.
PEMEX’s Methane Leaks Show No Sign of Abating. Merely two months after Mexican scientists discovered huge methane leaks at PEMEX’s offshore fields in Mexico, a huge methane plume was seen at the Ku-Maloob-Zaap cluster throughout August, stoking concerns of dilapidated infrastructure.
Conoco Pioneering US Hydrogen Gas Production. U.S. oil major ConocoPhillips (NYSE:COP) will be developing a hydrogen gas plant to be jointly managed with Japan’s JERA, with the latter providing natural gas for the plant (to be located along the Gulf Coast) as well as running its CCS facility.
Heat Waves Put California Power Prices Under Pressure. Amidst a prolonged heat wave, electricity prices in California have risen to their highest since the state’s electric grid operator imposed rotating outages in August 2020, with SP-15 power prices trading above $500 per MWh.
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Indonesia Braces for Widespread Fuel Protests. Seeking to ease budget pressures coming from a bloated $44 billion set of energy subsidies, Indonesia’s President Joko Widodo raised subsidized fuel prices by 30%, with analysts expecting widespread protests and disruption in its wake.
Canada Refinery Blast Jeopardizes Revamp. A huge explosion at the idled 140,000 b/d Come by Chance refinery in Canada’s Newfoundland and Labrador province injured eight people, just as the refinery is undergoing a transformation into a biofuel producer focusing on SAF and renewable diesel.
Shell and Exxon Put Up Europe’s Largest Gas Field for Sale. The UK’s Shell (LON:SHEL) and U.S. major ExxonMobil (NYSE:XOM) decided to sell their jointly owned NAM venture in the Netherlands, amongst others operator of the supergiant Groningen gas field that is mandated to shut (by government decree) in 2024.
Markets Rejoice at Chile Rejecting New Constitution Bill. Chile’s stock market and Chile-focused firms soared on Monday after citizens of the country rejected the new constitution proposed by President Gabriel Boric, easing fears that Chile’s left turn might jeopardize the interests of metal companies.
U.S. to Announce Blending Mandates in November. With the refining industry lacking any long-term vision of biofuel blending mandates amidst constant delays, the Biden Administration is set to announce a three-year blending target for 2023-2025 this November.
Hitting Bottom, Iron Ore Gradually Bounces Back. With Chinese benchmark Dalian iron ore prices slumping to a contract low of 92 per metric ton, iron ore futures have rebounded this week to 100/mt despite ongoing COVID restrictions in China with 33 cities under some form of lockdown.
By Tom Kool for Oilprice.com
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