It appears that oil market oversupply may already be upon us, with demand being hit hard by Omicron and by China cracking down on its independent refiners.
Friday, December 17th, 2021
Oversupply has been one of the main talking points in oil markets in recent months, and now it seems that it will soon be upon us. The softening of Asian oil demand, triggered by China's zero-COVID measures and Beijing's continued clampdown on independent refiners in Shandong, has curbed the enthusiasm of market bulls while Brent is now flirting with contango, a sign of looming oversupply. This being said, there remain some upside factors, primarily the low level of inventories globally - which are now roughly at March 2020 levels. With Omicron cases doubling daily in European countries, however, it seems supply is going to shoot past demand. Against this background, ICE Brent slid to $73 per barrel, whilst US benchmark WTI was trading at around $70.5 per barrel.
Get Ready for Some Chinese Buying. With China seeing its electricity mandates eased, coupled with the recent strengthening of the Dubai complex, opened up crude arbitrage from Europe, Africa, and the Americas into the Asia Pacific region, implying that the currently meager flows (down 30% y-o-y at 2.8 million b/d) should see an uptick in Q1 2022.
Germany Doesn't Expect Nord Stream 2 Launch Soon. Germany's energy regulator BNetzA said it does not expect the Nord Stream 2 gas pipeline, owned by Gazprom (MCX:GAZP), to be launched in the first half of 2022, sending European gas prices to all-time highs. Related: Russia Puts The Blame On Europe As Energy Crisis Worsens
Eni Doubles Down on Algeria. One of the world's foremost drillers, the Italian ENI (NYSE:E), signed the first exploration deal in Algeria following the North African country's reforming of its hydrocarbon sector, landing a 7,800km2 acreage in the onshore Berkine Basin bordering Libya.
Global Coal Demand To Rise 6% This Year. According to IEA forecasts, overall coal demand is set to increase by 6% in 2021 (to a total of 7.9 billion metric tons), largely driven by thermal coal becoming an even more important power generation source globally on the back of surging gas prices.
Freight Rates Plummet Ahead of Christmas. Following a seasonal pricing pattern, the Baltic Exchange's dry bulk freight index dropped to a 1-month low of 2,379, implying that tanker rates have posted their biggest weekly fall since February 2019 amidst easing pressure on freight prices.
Spiking EU Gas Prices Push Up Asian LNG. Much to the chagrin of Asian LNG buyers, soaring spot gas prices in Europe - trading some $12 per mmBtu above Asian LNG at $48/mmBtu equivalent - have been inevitably pushing up spot LNG quotes in the Asia Pacific, already at $45 per mmBtu.
Mozambique Seeks to Expedite Disrupted LNG Projects. The government of Mozambique is closing in on Islamic State-linked insurgents that disrupted the country's nascent LNG industry and stalled the construction of the $20 billion liquefaction plant by TotalEnergies (NYSE:TTE), whose first production was already delayed to at least 2026.
The Next Generation of Fracking Technology. The next generation of fracking technology has arrived, and every operator, pumper, oilfield service professional, trader, and financial institution needs to be aware of that. Get access to the most important fracking report of the year by Primary Vision by clicking here.
Shell Sale of Deer Park Refinery Delayed. The long-mooted sale of Shell's (NYSE:RDS.A) controlling interest in the 302,800 b/d Deer Park refinery in Texas to the Mexican national oil company PEMEX has been delayed into 2022 as the US Committee on Foreign Investment continues to review the transaction.
Forming Consortium Key to Landing Brazil Auction. One of the most closely watched upstream auctions of this year, Brazil's re-auctioning of its pre-salt Sepia and Atapu fields, saw two international consortia landing the deals, with the former going to the Petrobras-Total-QP-Petronas pairing.
Venezuela Tries Its Luck with Renewable Energy. Venezuela's National Assembly is preparing a draft bill on what it labeled 'alternative energy' that would seek to kickstart the country's renewable sector, as its Guri hydroelectric dam is susceptible to droughts and oil-burning plants keep on regularly breaking down.
ConocoPhillips Starts $1.4 Billion Alaska Project. US oil firm ConocoPhillips (NYSE:COP) has started production at the 30,000 b/d capacity GMT-2 oil field in the National Petroleum Reserve-Alaska, feeding into the company's ANS portfolio which is still yet to see the largest prospect (Willow) approved by authorities.
BP and Maersk Pilot Biofuel Blend On Ships. UK oil major BP (NYSE:BP) and Danish shipping company Maersk Tankers have successfully completed trials using marine fuel blended with biofuel - consisting of 30% FAME and VLSFO - potentially paving the way for a new wave of ship fuels.
Related: The World's Top Automakers Are Doubling Down On Electric Vehicles
Nuclear Plant Cracks Spark Fears of Power Meltdown. At least two nuclear power stations in France were shut down due to corrosion-induced cracks detected in reactor pipes, sending shares in EDF (EPA:EDF) plunging and adding another layer of concern to an already shaky power generation outlook in Europe.
Despite Missing Majors, Colombia Celebrates Licensing Success. The Colombian government stated 30 contracts will be signed in the upcoming days as a result of the Latin American country's latest licensing round, with Calgary-based Parex Resources (TSE:PXT) bidding on half of those blocks whilst national oil firm Ecopetrol (NYSE:EC) only bidding for five.
COVID Restrictions Hit China's Petchem Sector. With China's Zhejiang province having its first locally-transmitted COVID case in early December and then going into maximum stringency, petrochemical plants in the region were forced to cut run rates to roughly 50% of capacity on the back of logistics constraints and overall control measures.
By Tom Kool for Oilprice.com
More Top Reads From Oilprice.com:
Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations More
Comments
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School
In short US oil product is really expensive at the moment whereas US produced natural gas is not. There no such thing as too much oil for the World but there is such a thing as "too expensive in US Dollars" absolutely and that would include inside the United States which continues to gallop along towards an mostly pure battery electric vehicle fleet. That says to me the US oil and refined product market with the possible exception of propane remains in a massive glut.
Pricing is all over the place in the USA at the moment anyways. Either way there will be a massive increase in pure BEV on US Highways for 2022 goes without saying and is hardly news now.