While it is always risky attempting to forecast oil prices when volatility is soaring, the recent return above $100 for both WTI and Brent suggests fundamentals might once again be in the spotlight and a sustained price rally could be on the horizon.
Chart of the Week
- Dropping copper prices are often viewed as a crucial indicator in forecasting a future economic recession, hence the nickname Dr. Copper, and it seems that we have entered exactly that period.
- Since April, copper has lost almost a third of its value as inflation is creeping ever-closer to double-digit territory in both the US and Europe, suggesting economic momentum is slowing.
- Nominal interest rates on longer-term US treasuries have already started to weaken - the 10-year treasury rates fell to 3% recently - in another cautionary indicator of growth decelerating.
- Having hit the lowest rate since November 2020 late last week at 6,955/mt, copper prices have seen some respite this week on the back of China promising support for its embattled property sector.
- US oil services major Halliburton (NYSE:HAL) posted a 41% year-on-year increase in Q2 profits, arguing that it has years of solid demand ahead of it.
- One of Europe’s largest wind farms, the 475 MW Nysater project in Sweden operated by RWE (ETR:RWE) with Nordex-designs turbines hit the headlines this week as its turbine collapsed amid an alleged oil spill.
- Canadian oil producer Suncor Energy (TSE:SU) has agreed to bring in three new independent directors and sell its retail business, as part of its agreement with activist investor Elliott Investment.
Tuesday, July 19, 2022
As volatility soars, it is increasingly difficult to forecast what oil markets will do in the short term. Despite that fact, seeing oil prices climb again on the back of lower US Fed rate hikes and an overall weakening dollar, one might be tempted to believe we are back in a fundamentals-driven market. There might be a temporary pricing downside in Libya coming back online, but in the larger picture supply is undoubtedly lagging behind demand by a wide margin.
US Permian Production to Hit Record in August. According to the IEA’s DPR report, output in the Permian Basin is due to increase to an all-time high of 5.445 million b/d, up 80,000 b/d compared to this month’s rate, bringing total shale production to 9.1 million b/d.
Germany Wants its Nuclear Reactors Back. Germany’s economy ministry indicated Berlin may extend the lifespan of its three remaining nuclear power reactors, responsible for 6% of the country’s electricity generation, as they remain scheduled to be shut down by year-end 2022.
Gazprom Deflects Blame for Europe’s Gas Squeeze. Russia’s pipeline gas monopoly Gazprom told customers in Europe that its supplies have been in force majeure since June 14 as extraordinary circumstances beyond its control forced it to cut gas exports via Nord Stream 1.
Tensions Rise as Libya Lifts Force Majeure. The newly-designed head of Libya’s NOC Farhat Bengdara has called on all port blockades to be lifted, only several days after the Tripoli government stormed the headquarters of the national oil company and initiated talks with tribal leaders.
Biden Climate Bill Derailed Again. President Biden has pledged to take strong executive action after Senator Joe Manchin voted against a green bill that would have provided up to 300 billion in multi-year tax incentives for clean energy, an integral part of the US’ Paris Agreement roadmap.
EU Signs Azerbaijan Gas Deal. As we indicated last week, the European Union signed a memorandum of understanding with Azerbaijan, a move designed to double imports of natural gas to at least 20 bcm by 2027, up from 12 bcm this year.
Venezuela Operations Disrupted by Pipeline Blaze. Refinery operations in Venezuela’s key Jose complex were halted after a fire broke out on the Muscar-Soto gas pipeline, with the head of PDVSA Tareck El Aissami labeling it a “terrorist attack”.
US Wants to End Dependence on Chinese Rare Earths. According to US Treasury Secretary Janet Yellen, the United States wants to “friend-shore” its China rare earths dependence by supporting new capacity in friendly countries, such as South Korea or Japan.
Russia and China to Start Building New Gas Pipeline. The construction of the Power of Siberia-2 gas pipeline, delivering Russian gas via Mongolia to China, will most probably start in 2024, with its throughput capacity maximized to 50 bcm per year.
Russia Uses UAE Dirhams as Oil Currency. According to recently published reports from Reuters, at least two Russian sellers are demanding that Indian buyers carry out payment following a crude cargo delivery in UAE dirhams instead of the usual US dollars.
Saudi Arabia Cools Expectations of Spare Capacity. Saudi crown prince Mohammed bin Salman said it would take five years to boost Saudi Arabia’s crude production capacity from the current 12 million b/d to 13 million b/d, adding that there won’t be any capacity beyond that threshold.
TotalEnergies Wants to Lock In UAE Exports. French oil major TotalEnergies (NYSE:TTE) has been courting UAE national oil company ADNOC to clinch a diesel supply deal in 2023 when Russian products would be banned by the European Union.
Heatwaves Stretching US Grids. According to US grid operators in Texas and Southwest, this week will see unprecedented power use across the region amidst triple-digit temperatures, already pushing ERCOT North Hub power prices to $220 per MWh.
By Tom Kool for Oilprice.com
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