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Demand Destruction Fears Drag Oil And Gas Prices Lower


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Chart of the Week

- US cash natural gas prices for next-day deliveries have soared this week, with many locations trading above $7 per mmBtu for the first time since the Big Freeze in February 2021.

- The Henry Hub May ‘22 contract has been on the rise recently, settling at $7.82 per mmBtu on Monday, though a downwards correction on Tuesday brought trading closer to $7 per mmBtu.

- The peculiarity of the gas price spike is that demand is expected to be easing over the next seven days and production remains stagnant at 93.4 BCf per day. 

- With domestic coal supplies remaining tight, disallowing any large-scale fuel switching, the longevity of the bull run will largely depend on LNG outflows from the US. 

Market Movers

- UK industry holding Rolls-Royce (LON:RR) will likely receive regulatory approval for its small modular reactors by mid-2024, meaning that by the end of the decade pilot SMR projects could be producing energy already.

- A month after rejecting Carl Icahn’s purchase offer as inadequate, US utility firm Southwest Gas Holdings (NYSE:SWX) said it would evaluate selling itself after an unnamed buyer reportedly offered a price well in excess of Icahn’s $82.50 per share offer.

- The Iraqi government might reportedly reactivate a deal with Halliburton (NYSE:HAL)to drill wells in the idled Akkas gas field, potentially paving the way for a subsequent entry of either Chevron (NYSE:CVX) or Saudi Aramco.

Tuesday, April 19, 2022

The IMF cutting the global economy’s 2022 outlook by 0.8% compared to its previous forecast is the main talking point in markets today - after seeing strong demand across all commodities in Q1, we are now facing the reality of protracted demand loss going forwards. The Russia-Ukraine war has sent shockwaves across the metal and agriculture markets, potentially having an even larger impact on global markets than a Russian oil embargo would. Against this background, not even Libya’s descent into another period of chaos could hold oil prices above the $110 per barrel mark. 

Libya Supply Disruption Puts Europe on Alert. Libya’s national oil company has seen a ‘painful wave of closures’ and declared force majeure on exports from the Zueitina, Mellitah, and Sarir terminals amidst skirmishes, having been forced to shut down production at the country’s largest field, Sharara.

OPEC+ Gap Widens as Russia Starts Decline. Internal OPEC+ documentation showed that the oil group underperformed its March production target by a whopping 1.45 million b/d, bringing total compliance to 157%, with this month expected to see even wider discrepancies between output targets and actual production.  Related: U.S. Natural Gas Prices To Spike As Exports Boom

Biden Administration Resumes Oil Drilling on Public Land. According to media reports, the US Bureau of Land Management plans to resume selling drilling rights on federal lands in the western part of the country starting this week, curbing available leasing zones and hiking royalty rates. 

US NatGas Falls Back After Hitting 2008 Levels. Natural gas prices hit levels not seen since 2008 due to counter-seasonally cold weather across the mid-continent and still-strong LNG send-outs. On Tuesday morning, however, natural gas pulled back as traders took profits.

US DUCs Drops to Lowest Level Ever. According to the EIA Drilling Productivity Report, the number of drilled but uncompleted wells in the US dropped to the lowest level on record as of March 2022, at 4,273, indicating that drillers continue to prefer depleting DUCs instead of drilling new wells. 

Glencore Declares Cobalt Force Majeure. Energy major Glencore (LON:GLEN)reportedly declared force majeure on its cobalt deliveries out of the Democratic Republic of Congo after severe flooding debilitated logistics operations in South Africa, from where cobalt was usually exported.  


PEMEX Refinery Blaze to Trigger Higher Imports. The 330,000 b/d Salina Cruz refinery operated by Mexico’s national oil company PEMEX remains shut after a fire broke out over the weekend, most likely triggering higher imports of road fuels into the country over the upcoming weeks. 

UK Energy Firms Warn on ‘Horrific’ Power Hikes. With power and gas prices rising 54% from April onwards, leading power generation companies have called for a shift in government policy as some 30-40% of British households are expected to run into difficulties when paying electricity bills by the end of this year. 

India Starts Buying Discounted Russian Coal. Confirming market expectations, Indian buyers started taking in Russian deliveries of thermal coal at prices of $160-165 per metric ton CFR India (some $40/mt lower than ICE Newcastle) on the back of nationwide coal inventories reaching a mere eight days of consumption. 

Romania to Amend Upstream Terms to Lure Investors. Little less than a year after ExxonMobil (NYSE:XOM) decided to quit Romania’s offshore, the country’s government agreed to amend the country’s offshore law and reduce the progression taxation brackets. 

China Undercuts Iron Ore Prices. Iron ore futures in both Dalian and Singapore fell following NDRC comments that it expects 2022 steel production to be lower than last year (at 1.035 billion tons) so that China can be in line with its carbon emission commitments. 

Indonesia Hikes Coal Royalty Rates. Confronted with the long-term challenge of keeping domestically produced coal at home, the Indonesian government hiked royalty rates for coal miners from a single tariff of 13.5% to a range of 14-28%, with the maximum rate applying when prices surpass $100 per metric ton, i.e. now.  

Mexico’s Controversial Power Bill Voted Down. The AMLO-championed power bill that would have prioritized Mexico’s state-owned utility firm CFE over private operators failed to garner the two-thirds majority required for constitutional amendments, providing a mood upswing for the country’s business climate in general. 

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Leave a comment
  • George Doolittle on April 19 2022 said:
    Crazy speculation in commodities.
  • john tucker on April 20 2022 said:
    This is Spring.
    Happens every year.
    Its just slack time for oil and gas use.
    Greta or non-Greta, there is still going to be winter next year.
    If people are still blocking Russian oil and gas by then then people will be freezing to death and starving to death, no matter how much money Powell and the ECB choose to print.

Leave a comment

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