In what feels like an increasingly bullish oil market, $90 Brent is now a real possibility. While demand uncertainty persists, geopolitical risk, a weakening U.S. dollar, and OPEC+ supply cuts have moved prices higher.
- Long positions held by hedge funds and other money managers have seen the strongest influx of bullish interest since September 2023, indicating the market believes geopolitical pressures will keep on pushing oil prices higher.
- Net long positions held in Nymex WTI rose by 50 million barrels in the week ending March 19, whilst ICE Brent net longs increased by almost 55 million barrels, the biggest positioning move of the year so far.
- With physically deliverable Nymex WTI being the riskier financial instrument to bet on, ICE Brent has seen its net length soar to the highest level since March 2023, coming in at 289 million barrels (combined with the period a year ago, short positions have tripled in size to 70 million barrels).
- Proving that oil is becoming fashionable again amidst Middle Eastern conflict and Ukrainian drone strikes on Russian refineries, the combined open interest of WTI and Brent now stands at 518 million barrels equivalent, up 14% since the beginning of this year.
Market Movers
- French oil major TotalEnergies (NYSE:TTE) restarted production at Denmark’s Tyra offshore gas field after an almost 4-year-long major redevelopment project, aiming to produce 5.7 MCm per day.
- China’s largest listed miner Zijin Mining (SHA:601899) has signaled that its global expansion will be slowed down by increased US efforts to limit China’s clout in the mining industry, despite already owning copper and gold mines from Canada to Africa.
- Colombia’s oil firm Ecopetrol (NYSE:EC) was awarded 19.9% of US infrastructure firm McDermott, ending a prolonged legal dispute that started in 2016 when it sued the latter for doubling construction costs during a refinery modernization.
Tuesday, March 26, 2024
Brent prices continue to hover around $87 per barrel, with the recent rally consolidated by Russia doubling down on its OPEC+ production cuts, the US dollar continuing to weaken, and any semblance of an Israel-Palestine truce being off the cards right now. With Brent futures seeing signs of a stellar golden cross pattern developing, it might only take one bullish piece of news for $90 per barrel to happen.
Kurdish Production Sees No Light at the End of Tunnel. One year since the shutdown of Kurdish oil flows through the Kirkuk-Ceyhan pipeline, Iraq is yet to find common ground with oil companies operating in the separatist region, with Baghdad seeking to revise production terms and rights.
US Expedites SPR Crude Replenishments. The Biden administration has shifted from its usual 3 million barrel per month solicitations and announced two additional purchases of strategic crude stocks, aiming for 4.75 million barrels in August and 4.5 million barrels in September.
Libya Gets Ready for Government Turmoil. Libya’s government watchdog has temporarily suspended oil minister Mohamed Aoun, representing the Tripoli-based Government of National Unity, for alleged legal violations, several months after he called for the removal of NOC head Bengdara.
Sudan Oil Production Stuck as War Rages On. The war between Sudan’s army and the Rapid Support Forces paramilitary has forced Khartoum to declare a force majeure on pipeline deliveries to Port Sudan, blocking some 150,000 b/d of oil production from South Sudan.
Exxon Calls for Lower Prices to Make SAF Work. According to ExxonMobil, costs are the main obstacle to ramping up production of sustainable aviation fuel (SAF) as biofuel from used cooking oil or agricultural waste is 5 times more expensive than kerosene, limiting its investment appeal.
US Natural Gas Rig Count Drops to Two-Year Low. With US natural gas prices down 34% so far in 2024, the number of active gas rigs operating across the United States dropped to 112 as per Baker Hughes, the lowest number since January 2022 as Haynesville drillers keep on curbing activity.
Pemex Keeps on Failing Its Methane Pledges. Despite a damning report from the UNEP calling for immediate readjustments at Pemex’s Zaap-C offshore platform, satellite imagery shows it is still flaring 300 MCf per day of methane, with media reports indicating the Mexican oil firm is aware of what it would take to mitigate that but does nothing.
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Copper Stock Surge to Dent Price Rally. Shanghai Futures Exchange-managed copper stocks have soared to more than 285,000 metric tonnes, the strongest inventory build-up since the COVID-ridden year of 2020 and a sevenfold increase since the beginning of this year, capping the price rally.
US Urges Ukraine to Stop Striking Russia Refineries. According to the FT, the Biden administration is urging Ukraine to halt drone strikes on Russian energy infrastructure, on the heels of several refinery attacks in March, warning that they risk retaliation and ratcheting up global energy prices.
Chinese Disclosure Sheds Light on Exxon’s Huge Find. US oil major ExxonMobil (NYSE:XOM) has been reticent about the size of its Guyanese discoveries, although project partner CNOOC in its 2023 results presentation said their recent Lancetfish discovery holds 730 million barrels.
Goldman Sees Hope for Commodities in 2024. US investment bank Goldman Sachs believes commodities may return 15% over 2024 as central banks start cutting interest rates, emphasizing that gains wouldn’t be universal and that copper, aluminum, gold, and oil products will lead the way.
Russia to Prioritize Gazprom over Novatek. The Russian government greenlighted selling Shell’s (LON:SHEL) 27.5% stake in the Sakhalin-2 offshore project to state-controlled Gazprom for $1.03 billion instead of private LNG-focused producer Novatek, raising the former’s shareholding to 77.5%.
Court Suspends US Climate Disclosure Mandate. The 5th US Circuit Court of Appeals has approved a request from oilfield services firm Liberty Energy to halt enforcement of the climate disclosure mandate encompassing GHG emissions and risks, agreeing that the SEC overstepped its remit with the rule.
By Michael Kern for Oilprice.com
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The bullish sentiments are underpinned by solid market fundamentals, robust demand, rising Chinese crude oil imports and a tightening market.
Despite Western disinformation news trying to give the impression that the Chinese economy is struggling, market realities are telling a more confident and positive message that China's crude oil imports and manufacturing activity during January and February 2024 were 5.1% and 7% respectively higher than the same period in 2023. Moreover, China's economy, the world's largest based on purchasing power parity (PPP) is projected to grow this year by a healthy 5%.
Furthermore, OPEC+ is projecting that oil demand will grow this year by 2.2 million barrels a day (mbd) to 105.2 mbd rising to 110 mbd by2028 and hitting 116 mbd by 2046 thus giving the lie to the IEA's projection that peak oil demand will be reached by 2030.
That is why oil prices are now on an upward trajectory with Brent crude projected to range from $90-$100 during this year.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert