A combination of rising geopolitical risk and supply disruptions has pushed oil prices higher, with Brent looking increasingly likely to break the $90 mark.
- Energy stocks have started to outperform the wider stock market as Brent is nearing 89 per barrel this week, with energy leading the S&P 500’s eleven market sectors in March thanks to a 10% rise.
- The oil markets are anticipating the OPEC monitoring meeting on April 3, looking for potential clues on the directionality of pricing, with JPMorgan already predicting Brent to be in the $90s by May on Russia’s production cuts.
- The ongoing tightness in refined products has seen refiners outperforming pure upstream-focused companies by some 5 percentage points as the Red Sea shipping disruptions and refinery drone strikes in Russia kept supply restricted.
- According to Reuters, OPEC production declined to 26.42 million b/d in March, down 50,000 b/d compared to February, and the oil group is expected to see lower output in April still as Iraq vowed to offset its lack of compliance.
Market Movers
- Japanese trading house Mitsubishi (TYO:8058) agreed to buy an unspecified minority stake in MidOcean Energy, a LNG developer owned by US investment firm EIG, seven months after Saudi Aramco did the same.
- US oil refiner Phillips 66 (NYSE:PSX) is exploring a sale of its 25% stake in the Rockies Express Pipeline, a gas pipe connecting Wyoming to Ohio, seeking to garner more than $1 billion from the divestment.
- Oilfield services giant Schlumberger (NYSE:SLB) signed a landmark deal with Iraq to utilize associated natural gas for electricity production instead of routine flaring, covering some 120 MCf/day in the first six months and an additional 120 MCf/day within one year.
Tuesday, April 02, 2024
Brent oil futures peaked at $89.08 per barrel in early Tuesday trading, signaling that the triple threat of Middle Eastern tensions, lower Mexican crude supplies, and Ukrainian drone strikes on Russian refineries could lift crude above the $90 per barrel mark. The last time that Brent settled above $90 per barrel was 27 October 2023, and with OPEC widely expected to maintain its conservative stance, it’s not that difficult to imagine Brent surging higher again.
Mexico Curbs Exports in Preparation for Refinery Launch. According to Bloomberg, Mexico’s national oil company Pemex plans to halt some crude exports to the US, Europe, and Asia as it seeks to start commercial operations at the 340,000 b/d Dos Bocas refinery later this year.
Baltimore Reopening Not Happening Soon. As demolition crews have started to dismantle the collapsed Francis Scott Key Bridge in Baltimore, port authorities are preparing to open a temporary channel for commercial essential vessels, although it seems to be dedicated only to ships taking part in salvage operations.
Kimmeridge-SilverBow Merger Falls Through Again. Eagle Ford-focused US oil producer SilverBow Resources (NYSE:SBOW) rejected another takeover bid of asset manager Kimmeridge Energy that valued it at $2.1 billion including debt, despite the latter owning 12.9% of the company.
Ukraine Drone Strikes on Russian Refineries Continue. Ukraine struck the Taneco refinery in Russia on Tuesday, located 800 miles from the front lines in Ukraine and boasting a capacity of 360,000 b/d, with regional media saying the drones were intercepted but still triggered a fire.
Chevron Starts Venezuela Drilling Program. Petroindependencia, the joint venture of US oil major Chevron (NYSE:CVX) and Venezuela’s national oil firm PDVSA, has started a new drilling campaign that will see 17 exploration wells spudded this year, seeking to add 65,000 b/d of production.
Qatar Keeps the Shipbuilding Frenzy. QatarEnergy top executive Saad al Kaabi announced the LNG giant has signed charter contracts with Asian shippers to operate a fleet of an additional 19 LNG carriers, to be built at South Korea’s Samsung Heavy Industries, taking the total number of contracted ships to 104.
French Nuclear Output Rebounds Strongly. After three years of disrupted nuclear power supply, French power generators ramped up nuclear production to just over 4 million kWh in the first three months of 2024, up 13% year-on-year, easing the pressure on electricity prices.
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Goldman Predicts Fuel Demand to Peak in 2032. US investment bank Goldman Sachs (NYSE:GS) forecasts that global road fuel demand will increase by 5% from now to 2032, peaking then at 50 million b/d and then sticking to a protracted plateau all the way until 2040.
Shale Oil Looks for Nuclear Boost. As shale oil producers are increasingly moving away from diesel generators to local power grids, the unreliability of Texas’ stretched has prompted some drillers, notably Diamondback Energy (NYSE:FANG) signing a LOI with Oklo, to look to small nuclear reactors.
SLB Starts Oilfield Service M&A Drive. The world’s largest oilfield services firm SLB (NYSE:SLB) agreed to buy rival ChampionX (NASDAQ:CHX) in an all-stock deal valued at $7.75 billion that’s expected to close before end-2024, with the latter surging 10% in pre-market trading on Tuesday.
Kazakhstan Might be in Oil Spill Trouble. The Globus environmental group reported that a European satellite spotted an oil spill near Kazakhstan’s giant Kashagan oil field, producing some 400,000 b/d of light crude in the shallow waters of the Caspian Sea.
Shell Takes to Courts to Appeal Dutch Landmark Case. UK-based energy major Shell (LON:SHEL) started its appeal hearings this week, defying a 2021 Dutch order prompting it to cut GHG emissions by 45%, arguing the decision lacks a legal basis and would limit its transition strategy.
Gold Records Another All-Time High. Gold prices have reached another record high this week, hitting $2,265.70 per ounce, fortifying the metal’s standing as the number one pick in commodity markets in 2024 as the markets are building a mainstream position on a June Fed interest rate cut.
By Michael Kern for Oilprice.com
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